2 (II) Company Law

8/4/2019 2 (II) Company Law

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Company Law is that branch of law which deals exclusively with all

aspects relating to the companies, such as Incorporation of

companies, Allotment of Shares, share capital, Membership in

Companies, Management & Winding of company .

Application of Companies Act, 1956 :1) Companies registered under companies act .

2) Companies registered any previous companies acts.

3)Unlimited Companies registered as limited companies in

pursuance any previous Companies Act . 4) Banking, Insurance &

Electricity Companies not covered by their Respective Acts .

5) Government Companies .6) Nidhis are Mutual benefit societies declared as such under

notification by the central Government .


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OBJECTIVES OF THE COMPANIES ACT :

1) To Protect the Interest of the Share

Holders . 2) To Protect the Interest of Creditors . 3) To Enforce proper Performance of

Duties . 4) To prevent Misconduct and

Malpractices . 5) To promote Healthy Growth of the

Companies 6) To Ensure that the Activities of the

Company are carried also in Furtherance

of the Economic & Social Policy . 7) To Empower the Government to

Interfere & Investigate .


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COMPANY The Companies ( amendment ) Act, 1956, definedcompanyas A company performed and

registered under this act or an existing company .

Ajoint stock company is a voluntaryassociation of persons performed for somecommon purpose with capital devisable intoparts, known as shares and with limited liability .It is a creation of the law and is also known as anartificial person with perpetual succession and acommon seal .

An incorporated company is a totally different

person or thing or entity from its members or theindividuals composing it .


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CHARACTERISTICS OR FEATURES OF JSC:

The main features of JSC are as follows:

1) Voluntary Association : Or Organizations ofpersons free to become member & can live inmembership .

2) Incorporate or registered Association : UnderCompanies Act, which absolutely necessary for anassociation of persons or company to become JSC

.Advantages of Registration :

> Separate legal existence .

> Limited liability of members .

> Transferability of shares . > Control of company by acquiring majority

shares .

> Separation of ownership with management .

> It contributes to large ownership .


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3) Specific Objective : Stated in MOA . d) Artificial person created by law : It has no

physical and natural existence .

4) Not a citizen : It cannot claim to be a citizen ofthe country . But it has nationality, domicile orresidence for jurisdiction of court and income taxmatters .

5) Separate legal entity or corporate personality orveil of Incorporation : E.g. Salmon VS salmon &company limited .

6) Separate property : JSC has the right to own,enjoy and dispose of property in its own name .


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7) Perpetual succession or Continuous Existence : i.e.Members may come and go . But the company goes on until

it is wound up according to law .

8) Common seal : As company is a artificial person, sothere must be a device which could serve as the companiessignature as a official signature

( i.e. common seal ) which is kept in the custody of securityof the company SECRATORY.


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9) Limited liability of the members : i.e. limited byshares ( the amount paid ).

k) Transferability of shares : i.e. freelytransferable, which provide liquidity to theinvestors .

10) Large membership : No maximum limit . 11) Separation of ownership from management :As

JSC has a distinct or separate legal entity of itsown. i.e. share holders directly cannot participatein the management . Board of directors controlmanagement .

There is a VEIL or CURTAIN separating aJSC from its membership .

EXCEPTIONS : LIFTING or PIERCINGCORPORATE VEIL .


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LIFTING PIERCING THE CORPORATE VEIL :( PCV )

This Doctrine is an exception of companys

feature separation of legal entity . PCV states in certain circumstances . The court

ignore the separate legal entity of the company,and treat the company and its members as oneperson .

The VEIL can be LIFTED under two circumstances 1) Under judicial interpretation .

2) Under Express Statutory Provisions .

1) Under judicial interpretation : > For determining the character of the company . > For protecting the revenue of the government.

> For preventing fraud .

> Where a company is a shame .( mere cloak or

hoax )


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> Where company acts as agent ortrustee of members .

> For protecting public policy .

2) Under statutory provisions : > Reduction in members below statutory

minimum limit .

> Failure to repay the application money . > Misstatement in prospectus .

> Misdiscription of companies name .

> Fraudulent conduct of business .

> Directors or members violatingcompany act .

> When there is holding & subsidiarycompany under suspicious .( relations )


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COMPANY VS PARTNERSHIP :The company andpartnership firm can be differentiated based onfollowing characteristics.

1) Regulating Act .

2) Mode of Creations .

3) Number of Members .

4) Property Ownership .

5) Company or Single person . 6) Management .

7) Perpetual Succession .

8) Liability .

9) transfer or Shares .

10) Statutory Obligations .

11) Profit Sharing.

12) Death/Insolvency/Incapacity of members.


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KINDS OF COMPANIES : 1) ON THE BASIS OF INCORPORATION : a) Chartered companies , b) Statutory

companies c) Registered companies. 2) ON THE BASIS OF LIABILITY : a) Limited by shares , b) Limited by guarantee c) Unlimited companies. 3) ON THE BASIS OF NUMBER OF MEMBERS : a) Private company : ( min. 2& max. 50) Pvt Ltd. b) Public company : ( min. 7, max. unlimited ) . Private company to Public company . 4) ON THE BASIS OF CONTROL : a) Holding company : (>50%) . b) Subsidiary company : control of BoD, shares . 5) ON THE BASIS OF OWNERSHIP : a) Government company, (LIC, UTI)

b) Non government company .


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EXPLANATION :

1) ON THE BASIS OF INCORPORATION :

a) Chartered companies : Those companies whichare incorporated under a special charter granted byking or queen ( in England) EX. The East Indiacompany or The bank of England .

b) Statutory companies : Created by a special ACT ofthe legislature. EX. RBI & SBI e.t.c.

c) Registered companies : This type of companiesare formed under Companies Act 1956 and are wherecommon types of companies found in India.


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2) ON THE BASIS OF LIABILITY :

a) Companies limited by shares : In this type of

companies member is not liable to pay anything morethan the fixed value of the share, what ever may bethe liabilities of the company .

b) Companies limited by guarantee : In these

companies members promises to pay a fixed some ofmoney in the event of liquidation of the company. Thisamount is called the Guarantee ( or shares &Guarantee).

c) Unlimited companies : Sec 12 Specificallyprovides that those companies in which the liability ofshare holders is unlimited as in partnership firms iscalled unlimited companies.


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3) ON THE BASIS OF NUMBER OF MEMBERS :

a) Private company : A private company is one whichbuy its articles i) Restricts the right of the members totransfer the shares, if any, ii) Limits the number of itsmembers ( not counting its employees) to 50;

iii) Prohibits any invitations to the public to subscribefor any shares or debentures of the company.

A PVT must have its own Article of association whichcontains the condition as laid down in [ sec(3) (1) (iii)].

b) Public company :[sec 3 (1) (iv)] all companiesother than private companies are called Publiccompanies. In other words, a public company means a

company which by its article (i) Does not restrict theright to transfer of the shares if any,

(ii) Does not limit the number of members ; and

(iii) Does not prohibit any invitation to the public.


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Distinction between a public companyand private company : the major differences are

a) Minimum and maximum number of members.

b) Number of directors. [pub. co min 3, pvt .co 2].

c) Restriction on appointment of directors.[pub.co under taking for qualification shares.

d) Transferability of shares.

e) Invitation to subscribe for shares.

f) Special privileges : only for Pvt.co.

g) Quorum for meeting : min 2 Pvt.co & 5 Pub.co.

h) Managerial remuneration : cannot exceed 11%of net profit. (pub. co)


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When does a private company becomes apublic company ?

Where a default is made by pvt.co [no. of

members..] Where at least 25% of its paid up share capital is

held by one or more of the body corporate.

Where its average annual turn over during the

last 3 consecutive financial year is R.s 10 corersor more.

Where the pvt.co holds at least 25% of sharecapital of a pub.co.

Where a pvt.co invites, accepts, renews depositsfrom the public.

When a pvt. co becomes pub. co it must informthe Registrar within 3 months from the date of

conversion .


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3.ON THE BASIS OF CONTROL:

a) Holding company: Sec.4.(4) a Co isdeemed to be the holding Co. of anotherif but only if that other is its subsidiary (>50% or control BoD)

b) Subsidiary Company: Sec.4(4)a

company is deemed to be subsidiary ofanother Co. in the following cases:

i) Controlling the composition of BoD.

ii) Holding of majority shares.

iii) Subsidiary of another subsidiary.


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5.ON THE BASIS OF OWNERSHIP:

a) Government Company: 51% capitalheld by state or central govt. e.g. State TradingCorporation( STC).

b) Unregistered Company:

C) Foreign Company: A company incorporated

out side India.

D) One-Man Company:


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FORMATION OF A COMPANY:Promotion of company refers to stages offormation of a company. They are

1.Promotion Stage.

2.Selection of Name. 3. Incorporation (Registration)

Stage.

4. Raising of Share Capital Stage:

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Explanation:

1) Promotion Stage: This includes

Discovery of business opportunities. Detailed investigation.

Assembling Necessary Requirements:

Financing the proposition:

2) Selection of Name: to be identified

for legal and business purposes. (Ltd.or Pvt. Ltd). The name should not besimilar to the existing.

3) I i S


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3) Incorporation Stage: A company is said to be incorporated when it

fulfill the formalities of registration and obtain

Certificate of Incorporation". By submitting theMoA , AoA and written consent of all thedirectors.

A public to commence business, should raise the

required capital and obtain Certificate ofCommencement of Business.

4) Raising the Capital: Which includesfollowing steps;

A) entering onto agreement with underwriters. B) Applying to the stock exchange for listing of

shares.

C) Issue of prospectus inviting public to subscribe

Allotting shares.

PROMOTERS OF A COMPANY


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PROMOTERS OF A COMPANY: Apromoteris one who undertake a to form acompany with reference to a given object and to

set it going who takes the necessary steps toaccomplish that purpose

Liability of promoters: Liable to hand over any

secret profit and any personal interest indealings.

Liable to untrue statement in the prospectus.

Remuneration to promoters: If personalskills are involved in promotion.

Th M d f A i ti


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The Memorandum of Association(MoA)

The MoA is a document which contains the

Fundamental Rules regarding the constitutionand activities of the company.

It is the charter of the company defines its

raison detre( reason for existence).

It lays down the area of operation of thecompany.

It also regulates the External Affairs of thecompany.

S 13


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CONTENT OF MoA :Sec.13. 1)The name clause: The name of the company.

2)The Register Office Clause: The name of the

state.. 3)The Object Clause: The Object of the company.

4) The capital Clause: The Registered/ Authorized/Nominal Capital.

5) The Liability Clause: The nature of liability ofthe members.

6) The Association Clause: Names , addresses anddescription of the subscribers and the number of

shares taken by each of them. The MoA must be signed by at least seven

subscribers in the case of Public Company andTwo in the case of Private company.

Doct ine of Ult a Vi es (Be ond


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Doctrine of Ultra-Vires (Beyondthe Powers):

The company exists only for thepurposes stated in its MoA and any actdone outside the expressed or impliedpowers is Ultra-Vires and therefore nulland void.

Ashbury Railway Company VsRiche.

Object of co. sell and lend railway

carriages. Lease mines and building. Entered contract with Riche for financing

Construction of railway line in Belgium.

The contract is not binding on railway co.

as it is Ultra-vires the MoA.


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Exceptions To (DoUV) :

1. If an act is ultra-vires the powers of thedirectors.2. If an act is within the powers of the company,irregularly done ,shareholders can validate it .3. The companies right over property is protected

by ultra-vires act.

Doctrine of Constructive Notice (DCN):


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Doctrine of Constructive Notice (DCN):

Any person who enters into contract with acompany, is expected to have knowledge of thepower and position of the company and itsdirectors, and he is presumed to have gonethrough its MoA and AoA.

This rule is popularly called as DCN.

DOCTRINE OF INDOOR MANAGEMENT(DIM):

Is exception to the DCN.

The outsider cannot be expected to know the

internal affairs of the company or to inquire intothe irregularities of the companys internalaffairs. He is entitled to presume that the internalmanagement of the company is regular.

This is known as DIM or TURGUANDS RULE.

DIM Rule i b L d H th l i th


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DIM Rule was given by Lord Hatherly in thecase ROYAL BRITISH BANK VsTURGUAND

Case: Director issued Bond to Turguand withoutpassing any resolution. Bond rejected on theground of DCN. Turguand filled a case againstbank and pleaded not knowing irregularities ofmanagement.

Judgment: Turguand can sue the bond (valid)presumed as resolution passed i.e. under DIM.

Exceptions to DIM: 1. Knowledge of Irregularity.

2. Negligence of outsider: Forgery of document:

Acts outside the Apparent Authority:

No Knowledge of the Content of the MoA and AoA

ARTICLE OF ASSOCIATION (AoA):


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ARTICLE OF ASSOCIATION (AoA): The AoA contains regulations regarding all

matters concerning the internal affairs of thecompany.

CONTENT OF AoA: 1. Division of share capital of the company and

rules regarding allotment, Issue, Transfer andForfeiture of shares.

2. Procedure of holding and conducting thevarious company meetings.

3. Voting rights of members and rules regardingmethods of voting.

4. Matters relating to appointment, powersduties, qualification and remuneration ofdirectors.

5. Methods to increase or decrease capital.

6. Terms of appointment ,remuneration,

delegation of authority e.t.c .of secretary or

7) Rules relating to issue of share capital


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7) Rules relating to issue of share capital.

8) Declaration of dividend and rules regarding itspayment.

9) Rules relating to accounts, audit charging ofdepreciation and creation of reserves etc.

10) Methods of securing loans.

11) Rules regarding common seal of thecompany.

Procedure of winding up of a company.

AoA should be printed , divided into paragraphsand serially numbered.

And all the subscribers who has put theirsignature on the MoA are required to put theirsignature , addresses etc.

Alteration of AoA: By Passing a Spl. Resolution.

PROSPECTUS


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PROSPECTUS

Prospectus means any document described orissued as a prospectus inviting deposits from

public or inviting offer from public for thesubscription or purchase of any shares in, ordebentures of the company.

Certificate in Lieu of Prospectus is issued by a

public co. where the company doesnt invitepublic subscription.

ESSENTIAL CONTENT OF THE PROSPECTUS:

1) Date of issue of prospectus. 2) Name and register office of the company.

3) Consent of Central Govt. for the present issueor compliance with the with the SEBI guidelines.

Voting rights Dividend ,expenses on issue etc.

4) Name of the stock exchange


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4) Name of the stock exchange.

5) Punishment for fictitious application.

6) Refund of issue if 90% min. subscription notreceived.

7) Issue of allotment letter or refund within 10weeks with interest.

8) Date of opening and closing of issues.

9) Names and addresses of lead managers.

10) Credit rating from CRISIL (The Credit RatingInformation Services of India Limited.)

11) Terms of Underwriting.& Risk Factors.

12) Capital Structure of the company, size of

present issue ,paid up capital13) Terms and particulars of the issue.

14) Promoters ,Directors names addresses

15) Restriction on transfer and transmission ofshares.

LIABILITY FOR MIS-STATEMENT IN THE


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LIABILITY FOR MIS STATEMENT IN THEPROSPECTUS: Sec 65 of the companies act laysdown that the term Un true statement inconnection with a prospectus shall be deemed to

include. a) A statement which is misleading in the form &

context in which it is included; &

b) An omission ( of any matter) which iscalculated to mislead.

PERSONS LIABLE FOR UNTRUE STATEMENTS INTHE PROSPECTUS: sec 62 (i).

i) Every person who is the director of thecompany at the time of issue of prospectus.

ii) Every person who has authorised himself to benamed.

iii) Every person who is a promoter of the co.

iv) Every person who has authorised the issue of

prospectus.

The liabilities for untrue statement: The


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The liabilities for untrue statement: Thecompanies act imposes a two fold liability on thepersons responsible for untrue statement in theprospectus.

i) Civil liability. & ii) Criminal liability.

i) civil liability:

sec 62 (i) Such persons are liable to pay

compensation for any loss or damage which anyperson may suffer from the purchase of any shareor debenture on the basis of untrue statement.

ii) Criminal liability :

sec 63 (i) every person who has authorised

the issue of prospectus containing untruestatement, shall be punishable withimprisonment which may extend to two years orwith fine which may extend to Rs.5,000 or withboth.

Defense against the civil and criminal liability.

SHARE CAPITAL


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SHARE CAPITAL Various categories of share capital are:

1) Nominal or Authorized Capital: max capital.

2) Issued Capital : Offered to public. 3) Subscribed Capital: Taken up by public.

4) Called up Capital: amount collected by share

holders.

5) Paid up Capital : Paid up by shareholders.

Transfer of Shares: by delivery andendorsement.

Transmission of Shares: means transfer ofproperty or title in share by law. Transfer of shares

from deceased member to his legal representative

or in case of bankruptcy to his Official Receiver.

CLASSIFICATION OF SHARES:


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CLASSIFICATION OF SHARES:

1) Preference Shares :again divided intoa) Cumulative and Non cumulative.

b) Redeemable and Non redeemable.( return back )c) Convertible and Non convertible.

d) Participating and Non participating.( in surplusprofit )

2) Equity or Ordinary Shares:a) Preferred Ordinary Shares: preference for

Dividend & capital repayment.

b) Deferred Ordinary Shares:

3) Founders or Management Shares:4) Co- Partnership Shares: to employees.

Share certificate Vs Share warrant.

MEMBERSHIP OF A COMPANY :


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MEMBERSHIP OF A COMPANY :

Member sec 45: The term member of a companymeans i) The subscribers of MOA of co. ii) every otherperson who has agrees to become a member of a co.

And whose name is entered in its register of members.

How is membership created :

By signing the MOA, By getting allotment of shares, Byobtaining shares in inheritance, By allowing his nameto remain in the register of members .

How membership is terminated : By death, By insolvency, By rescission of the contract,

By forfeiture of shares, By surrender, By transfer, Bysale, By mortgage of shares & By winding up.

DIVIDEND POLICY :


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DIVIDEND POLICY : Dividend is a part of a profit which is paid to the

share holders of a company

Rules and regulations Regarding Payment of Dividend: Sec. 94 and 205 t0 207.

1.BoD decision is final in payment of dividend (of Profit)

2.Payment ofInterim dividend.

3. In proportion to paid up capital

4. Transfer to Reserve Fund up to 10% of profit.

5. Dividend paid in cash only.

6. Unpaid Dividend Account: Transfer to gen. a/c ofCentral govt. if unpaid.

7. Dividend paid only to Registered share holders only.

8. Penalty : if dividend not declared within 42 days.

9. Dividend becomes debt from the date of declaration.

DEBENTURE includes debenture


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DEBENTURE includes debenture,stock, Bonds and other securities of the companywhether constituting a charge on the assets ofthe company or not.

Kinds of Debentures:

1) Bearer or Unregistered Debentures.

2) Registered Debentures.

3) Secured Debentures. 4) Unsecured debentures.

5) Redeemable Debentures.

6) Irredeemable Debentures.

7) Convertible and Non convertible debentures.

Debentures Vs Shares :

MEETINGS RESOLUTIONS AND GENERAL


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MEETINGS, RESOLUTIONS AND GENERALMANAGEMENT:

TYPES MEETINGS: The companies act provide

for Four types of meetings:

1.Meeting of Shareholders: These may befurther divided into

a) Statutory Meeting.

b) General meetings: again divided into

i) Annual General Meetings.

ii) Extraordinary General Meetings :

2. Class Meetings : 3. Meetings of Creditors and Debenture

Holders :

4. Meeting of Directors.

1.Meetings of Share holder


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1.Meetings of Share holdera) STATUTORY MEETING: Sec.165 Every

public company limited by shares and everycompany limited by guarantee and having ashare capitalmust within in a period of not less than onemonth not more the six months from the date atwhich the company is entitled to commence

business, hold a general meeting of memberswhich is called the statutory meetings.

Statutory Report : drafted by directors andcertified by at least two directors of which oneis MD. Which is sent to every member of , at

least 21 days before meeting.Statutory report contains details about fully and

partly paid shares, cash received Expenses ofbrokerage etc., Details about directors,

Particulars of contracts.

b). General Meetings: General meeting of


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b). General Meetings: General meeting ofthe company is called by the board of directors bygiving short notice or 21 days if it is annualmeeting. General meeting is called when ever isrequired.

i)The Annual General Meeting: (AGM) Sec.166.provides

First annual meeting within 18 months. Next annual meeting within 12 months and shld

not exceed 15 months. Registrar may extend the time holding other

meetings. Written Notice of 21 days to the members before

meeting. Annual meeting should be called during business

hours. Persons responsible for the default are liable to

be fined up to Rs. 50000 and Rs.2500 forcontinuing default.

ii) Extraordinary General Meeting: (EGM)


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ii) Extraordinary General Meeting: (EGM) Any general meeting other than AGM is called

EGM. It is called for transacting some urgent orspecial business which cannot be postponed till

the next AGM. The BoD can be compelled to hold a EGM upon

request or requisition made for it under thefollowing conditions.

* The requisition must be signed by membersholding at least 1/10th of the paid up capital or1/10th of voting power.

* The requisition for the meeting must mentionmatter for discussion.

* The requisition must be deposited at theregister office of the company.

21 days-Notice ,45 days- Meeting to be heldfrom the date of requisition

2) CLASS MEETINGS : Class meetings of


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2) CLASS MEETINGS :Class meetings ofshare holders holding different class of shares.

3) MEETINGS OF CREDITORS OF DEBENTURE

HOLDERS : This type of meetings or held duringthe life time of company & the winding up ofcompany.

4) MEETINGS OF DIRECTORS : The companies actcontains the following provisions relating toboard meetings.

a) Directors must hold at least 4 meetings in ayear, at least once in every 3 months.

b) Notice of the meeting must be given to thedirectors and quorum will be 1/3rd of the totalstrength or two directors, which ever is higher.

c) Lack of quorum will lead to adjournment ofthe meeting.

RULES AND PROCEDURE REGARDING


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RULES AND PROCEDURE REGARDINGMEETINGS :The general rules of procedure asregard share holders meetings are as follows:

1) Notice.

2) Agenda : Ordinary and special business.

3) The quorum for meeting : min.members 5&2.

4) Chairman of the meeting : Elect achairman.

5) Proxy : To attend and vote on behalf ofmember.

6) Method of voting : Show of hands are a

Poll.

RESTRICTION ON VOTING POWERS


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RESTRICTION ON VOTING POWERS:Sec.181&182

An Equity share holders can vote on allresolutions; a preference share holder can voteonly on questions affecting his interest, wherethe dividend payable is in arrears. The article of

a company may provide that a member shall notexercise voting power in respect of a share onwhich a call or any other sum due to the companyhas not been paid. No other restrictions on votingrights can be imposed.

RESOLUTIONS :


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RESOLUTIONS : Resolutions of members in a company are of

three types :

1) Special resolution : 2) Ordinary resolution :

3) Resolution requiring special notice.

1) Special Resolution: Sec.189(2) Special

Resolution is a resolution which is passed by amajority of 3/4th of the members either by showof hands or by poll either in person or by proxy.

Special resolution is essential for the following

i) To alter the memorandum, place, Object.

ii) To change the name of the company.

iii) To alter the AoA.

iv) To pay interest out of capital.

v To Wind u a co.

2) Ordinary Resolution:


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2) Ordinary Resolution:

A resolution is Ordinary Resolution when atgeneral meeting, the vote cast in favour ofresolution are more than the votes cast againstthe resolution by members entitled to vote andvoting.

Ordinary Resolution is required in the following

i) For rectification of name. To issue the shares atdiscount. Alteration of Share capital. Passing ofannual account and B/S. Appointment of auditors, Directors and fixation of remuneration.

Voluntary winding up of co.

3. Resolution Requiring Special Notice:


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q g pSec.190.

Resolution requires a special notice of theintention to move the resolution has to be given

to the company. The notice be given at least 14days before the meeting at which the resolutionis to be moved.

A special notice is required in the following

i) Appointment of auditors.

ii) Removal of directors.

iii) appointment of directors in place of one whois removed.

Minutes of Proceeding: Minute means a written

summary of the proceedings a of a meeting. Contains summary of the meetings names of

members present, resolutions passed and opinionof chairmen.

Payment of Interest out of Capital:Sec208.


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Payment of Interest out of Capital:Sec208. A company cannot pay interest out of capital,

except in the following cases

i) Where any shares in a co. are issued for thepurpose of raising money to defray the expensesof construction of any work/ building or theprovision of any plant , which cannot be madeprofitable for a lengthy period.

ii) Authorized by AoA.

iii)The prior permission or prior sanction bycentral govt.

DIRECTORS


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DIRECTORS

Definition. Sec.2(13) any person who isoccupying the position of the director, by

whatever name called. Sec303 any person in accordance with

whose direction and instructions the BoDof a co. is accustomed to act shall bedeemed to be director of the co. A directormay, therefore, be described as anindividual who guides , directs , governs,

manages or superintends the policy andaffairs of a co. by whatever name called.

Appointment of Directors: By following ways


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pp y g y

A) By AoA by first directors.

B) By the company in general meeting.

C) By board of directors. D) By debenture holders & other creditors.

E) By the central government.

F) By the rule of proportional representation.

NUMBER OF DIRECTORSHIP: According tosec 227 A person cannot hold the office at thesame time as a director in more than fifteen

companies.

SHARE QUALIFICATION: SEC 270.


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Q a) director shall be deemed to be qualified if he

secures the qualification shares with in twomonths after his appointment.

b) The nominal value of qualification share orshares shall not exceed Rs 5000.

c) Every director not being a tech. directorappointed by the central or state governmentmust file a statement of share qualification.

d) The bearer of share warrant shall not bedeemed holder of shares for the purpose ofqualification shares. { Public co. }

DISQUALIFICATION OF DIRECTORS: sec 274

Person of unsound mind, Un dischargedinsolvent, Convict, Those who has not paid any

calls in respect of shares or Ordered by court.

RETIREMENT OF DIRECTORS :sec 255


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provides that not less than 2/3rd of the totalnumber of director of a public company or aprivate company which is a subsidiary of a pub

co.. Shall be persons whose period of office isliable to terminate by rotation.

POWERS OF DIRECTORS : Normally derivetheir powers and authority from two sources

i) By article of association .

ii) The companies Act.

Sec 292 powers of directors are :

Powers to make calls on share holders. To issue debentures.

To borrow money otherwise than on debentures.

TO invest the funds of the company.

To make loans.

RIGHTS OF DIRECTORS : sec 318-321


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Participate in the direction of the companiesaffairs.

Entitle to receive remuneration fixed by AOA/Act. Directors or a MD may be given compensation by

the co. in case of premature termination ofservices.

DUTIES OF DIRECTORS : sec 297,299-302


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i) Fiduciary duties: Directors must exercise theirpower honestly and in the interest of the co. andshareholders.

ii) Duties of care ,Skill and Diligence:

iii) Other Duties:

a) To attend board meetings.

b) He must not delegate his functions except tothe extent authorized by the act.

C) He must disclose his interest the BoD.

LIABILITIES OF DIRECTORS:


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The liabilities of directors may be discussed underfour heads:

i) Liabilities to Third Parties. Misstatement etc.ii) Liability to the Company.

iii) Liability to the Breach of Statutory Duties:

iv) Liability to the acts of his Co-directors.

ii) Liabilities to the company:

a) Ultra-vires act b) Liability for negligence.

c) For any breach of trust. d) For any misconduct.

ACCOUNTS AND AUDIT: Sec.209.


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Every co at it register office shall keep books ofaccount with respect to, six months penalty orfine Rs.10,000 or both

a) all sums of money received and expended.

b) all sales and purchases of goods by the co.

c) the assets and liabilities of the co.

d) utilization of material or labour or other costs. Inspection of Books of account:

Annual Accounts and Balance sheet:

Boards Report: co. affairs, reserves, dividend Filing of accounts with the Registrar: within

30 days from the date of B/S and P&L A/C filing.

AUDIT AND AUDITORS:


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AUDIT AND AUDITORS: Audit of the co. is intended for the protection of

the shareholders.

Auditors are the person who will examine theaccounts maintained by the directors with a viewto informing the shareholders of the true financialposition of the co.

Rights and powers of the Auditors : Right of access to books of a/c and Vouchers.

Right to obtain information and Explanation.

Right to visit branch offices and access to books.

Right to receive notice of general meeting and toattend.

Right to receive remuneration.

DUTIES OF AUDITORS: Sec 227


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1.The auditor must acquaint himself with the AoAand Companies Act.

2. Auditor should report to the members of the

company on the accounts examine by him. 3. Duty as watchdog.

Auditors Report: After examining the accountsof the co. an auditor is required to make a report

to the member of the company. The auditor report includes

Loans and advances of co.

Assets of the co.

Personal expenses. Any shares allotted for cash.

Proper books of a/c are maintained and otherinformation.

Winding Up of a Company :


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g p p y

Winding up or liquidation of a co. means the terminationof the legal existence of a co. by stopping its business,collecting its assets and distributing the assets among

creditors and shareholders, in the manner laid down inthe Companies Act.

Modes or Methods of Winding Up

There are three methods of winding up of acompany, i.e.,

1. Compulsory Winding Up of Company by thecourt

2. Voluntary Winding Up. This may be_a) Member's Voluntary winding up.

b) Creditors Voluntary winding up.

3. Winding up under the supervision of the court.

Explanation: Modes of winding up


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1. Compulsory winding up of co. on followinggrounds.

a) Special Resolution for the winding up.

b) Default in holding Statutory meetings or indelivering Statutory Report.

c) Failure to Commence Business within a yearfrom the date of incorporation.

d) Reduction in membership below statutoryminimum.

f) If the co. unable to pay its debt.

g) If the court is of opinion that it is just andequitable that the co. should be wound up.

Who can apply for winding up?

*By the co. *By any Creditors. * By a Contributory.

* By the Registrar.

2. Voluntary Winding Up: means winding up by


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members themselves without the intervention ofthe court.

a) By an Ordinary Resolution. (duration completed)

b) By special resolution in other cases.

Types of Voluntary Winding Up:

i) Members Voluntary Winding Up.

ii) Creditors Voluntary Winding Up.

Powers And Duties of Liquidators:

Contributories: Is a person who is liable to

contribute to the assets of the company in theevent of winding up. The persons liable ascontributories may be i) Present Members.

ii) Past Members & iii) Directors.

3.Winding Up Under the Supervision of the


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Court. The court may make an order and mayregard to the wishes of the creditors andcontributories. The court may appoint aadditional liquidator.

Consequences of Winding Up :

1. Consequences as to Shareholders: Limitedliability.

2. Consequences As to Creditors: The order ofpriority paying off debts in a winding up is

i) Secured creditors ii) Cost and Charges ofWinding. iii) Preferential Debts. Iv) FloatingCharges. V) Unsecured Creditors


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2 (II) Company Law

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Transcript of 2 (II) Company Law