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COMPANY LAW ANDSECRETARIALPRACTICES.

PROJ

ECT

COURSE INSTRUCTOR:- SUBMITTED

BY:-MR.ROHIT BORA RAHULGUPTA

SY-E2263



OBJECTIVES OF THE PROJECT

GET TO KNOW ABOUT ACTUALPROCEDURE FOLLOWED WHILEINCORPORATING A JOINT STOCK COMPANY.

TO KNOW ABOUT THE VARIOUS LEGALDOCUMENTS AND FORMS REQUIRED FORINCORPORATION.

TO KNOW THE VARIOUS DUTIES ANDRESPONSIBILITIES OF THE PROMOTERS

WHILE FOLLOWING THE PROCEDURE.



ACKNOWLEDGEMENT

I WOULD LIKE TO THANKS ROHIT SIR FORHIS GUIDANCE AND MOTIVATION WHICHLEAD TO COMPLETION OF THISPROJECT.WHILE DOING THE PROJECT, ILEARNT ABOUT MANY THINGSWHICH WERE JUST WERE READ BEFOREONLY IN BOOKS.

EXPRESSING MY DEEPLY GRATITUDE FORTHE SUBJECT, I WOULD LIKE TO DO SUCHPROJECTS IN FUTURE WHICH NOT ONLY ENHANCES KNOWLEDGE BUT ALSOBRINGS VIVID PICTURE OF APPLICATION

OF KNOWLEDGE IN REAL & REQUIREDSITUATIONS.



Association with the State Registrar of Companies of thestate in which the main office is to be located.Foreign companies engaged in manufacturing and tradingactivities abroad are permitted by the Reserve Bank of India

to open branch offices in India for the purpose of carrying onthe following activities in India:

1) To represent the parent company or other foreigncompanies in various matters in India, for example, acting asbuying/selling agents in India, etc.

2) To conduct research work in which the parent company isengaged provided the results of the research work are madeavailable to Indian companies.

3) To undertake export and import trading activities.

4) To promote possible technical and financial collaborationbetween Indian companies and overseas companies.

Application for permission to open a branch, a project officeor liaison office is made via the Reserve Bank of India bysubmitting form FNC-5 to the Controller, Foreign Investment

and Technology Transfer Section of the Reserve Bank of India. For opening a project or site office, application may bemade on Form FNC-10 to the regional offices of the ReserveBank of India. A foreign investor need not have a localpartner, whether or not the foreigner wants to hold fullequity of the company. The portion of the equity thus notheld by the foreign investor can be offered to the public.



A company as an entity has several distinct featureswhich together make it a unique organization. The following are the defining characteristics of acompany:-

Separate Legal Entity:

On incorporation under law, a company becomes a separatelegal entity as compared to its members. The company isdifferent and distinct from its members in law. It has its ownname and its own seal, its assets and liabilities are separateand distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a

bank account, employing people, entering into contracts andsuing and being sued separately.

Limited Liability:

The liability of the members of the company is limited tocontribution to the assets of the company upto the facevalue of shares held by him. A member is liable to pay only

the uncalled money due on shares held by him when calledupon to pay and nothing more, even if liabilities of thecompany far exceeds its assets. On the other hand, partnersof a partnership firm have unlimited liability i.e. if the assetsof the firm are not adequate to pay the liabilities of the firm,the creditors can force the partners to make good the deficitfrom their personal assets. This cannot be done in case of acompany once the members have paid all their dues towardsthe shares held by them in the company.

Perpetual Succession:



A company does not die or cease to exist unless it isspecifically wound up or the task for which it was formed hasbeen completed. Membership of a company may keep onchanging from time to time but that does not affect life of

the company. Death or insolvency of member does notaffect the existence of the company.

Separate Property:

A company is a distinct legal entity. The company's propertyis its own. A member cannot claim to be owner of thecompany's property during the existence of the company.

Transferability of Shares:

Shares in a company are freely transferable, subject tocertain conditions, such that no share-holder is permanentlyor necessarily wedded to a company. When a membertransfers his shares to another person, the transferee stepsinto the shoes of the transferor and acquires all the rights of

the transferor in respect of those shares.

Common Seal:

A company is a artificial person and does not have a physicalpresence. Therefore, it acts through its Board of Directors forcarrying out its activities and entering into variousagreements. Such contracts must be under the seal of thecompany. The common seal is the official signature of the

company. The name of the company must be engraved onthe common seal. Any document not bearing the seal of thecompany may not be accepted as authentic and may nothave any legal force.

Capacity to sue and being sued:



A company can sue or be sued in its own name as distinctfrom its members.Separate Management:A company is administered and managed by its managerial

personnel i.e. the Board of Directors. The shareholders aresimply the holders of the shares in the company and neednot be necessarily the managers of the company.

One Share-One Vote:

The principle of voting in a company is one share-one vote.I.e. if a person has 10 shares, he has 10 votes in thecompany. This is in direct contrast to the voting principle of

a co-operative society where the "One Member - One Vote"principle applies i.e. irrespective of the number of sharesheld, one member has only one vote.

Illegal Association:

Under the Companies Act, 1956, not more than 10 personscan come together for carrying on any banking business andnot more than 20 persons can come together for carrying on

any other of business, unless the association is registeredunder the Companies Act or any other Indian law. Anyassociation which does not comply with the above norms isan illegal association. Therefore, a partnership of more 10 or20 members, as the case may be, is an illegal associationunless the registered under the Companies Act or any otherIndian law.

Consequences of non-registration:

An illegal association is not recognised by law. An illegalassociation cannot enter into any contract, cannot sue anymembers or any outsider, and cannot be sued by anymembers or outsiders for any of its debts. The members of the illegal association are personally for the obligations of



the illegal association. A member may be liable to a fine of Rs. 1000. Any member of an illegal association cannot sueanother member in respect of any matter connected with theassociation.

Minimum number of members:

A public company must have at least 7 members whereas aprivate company may have only 2 members. If the numberof members falls below the statutory minimum and thecompany carries on its business beyond a period of sixmonths after the number has so fallen, the reduction of number of members below the legal minimum is a ground

for the winding up of the company.

I. Promotion:

Refers to the entire process by which a company is broughtinto existence. It starts with the conceptualizations of thebirth a company and determination of the purpose for whichit is to be formed. The persons who conceive the companyand invest the initial funds are known as the promoters of the company. The promoters enter into preliminary contractswith vendors and make arrangements for the preparation,



advertisement and the circulation of prospectus andplacement of capital. However, a person who merely acts inhis professional capacity on behalf of the promoter (e.g.lawyer, CA, etc) for drawing up the agreement or other

documents or prepares the figures on behalf of the promoterand who is paid by the promoter is not a promoter.

The promoters have certain basic duties towards thecompany formed:-

1. He must not make any secret profit out of the promotionof the company. Secret profits is made by entering into atransaction on his own behalf and then sell to concernedproperty to the company at a profit without making

disclosure of the profit to the company or its members. Thepromoter can make profits in his dealings with the companyprovided he discloses these profits to the company and itsmembers. What is not permitted is making secret profits i.e.making profits without disclosing them to the company andits members.

2. He must make full disclosure to the company of allrelevant facts including to any profit made by him in

transaction with the company.

In case of default on the part of the promoter infulfilling the above duties, the company may:-

1. Rescind or cancel the contract made and if he has madeprofit on any related transaction, that profit also may berecovered.

2. Retain the property paying no more for it then what thepromoter has paid for it depriving him of the secret profit.3. If these are not appropriate (e.g. cases where the propertyhas altered in such a manner that it is not possible to cancel



the contract or where the promoter has already received hissecret profit), the company can sue him to for breach of trust. Damages upto the difference between the marketvalue of the property and the contract price can be

recovered from him.

A promoter may be rewarded by the company forefforts undertaken by him in forming the company inseveral ways. The more common ones are:-

1. The company may to pay some remuneration for theservices rendered.

2. The promoter may make profits on transactions entered

by him with the company after making full disclosure to thecompany and its members.

3. The promoter may sell his property for fully paid shares inthe company after making full disclosures.

4. The promoter may be given an option to buy furthershares in the company.

5. The promoter may be given commission on shares sold.

6. The articles of the Company may provide for fixed sum tobe paid by the company to him. However, such provision hasno legal effect and the promoter cannot sue to enforce it butif the company makes such payment, it cannot recover itback.

If the promoter fails to disclose the profit made by him incourse of promotion or knowingly makes a false statement inthe prospectus whereby the person relying on thatstatement makes a loss, he will be liable to make good theloss suffered by that other person. The promoter is liable foruntrue statements made in the prospectus. A person who



subscribes for any shares or debenture in the company onthe faith of the untrue statement contained in theprospectus can sue the promoter for the loss or damagessustained by him as the result of such untrue statement.

II.Incorporation by Registration:

The promoters must make a decision regarding the type of company i.e a pubic company or a private company or anunlimited company, etc and accordingly prepare thedocuments for incorporation of the company. In this

connection the Memorandum and Articles of Association (MA& AA) are crucial documents to be prepared.

Approval Of Name:

The first step in the formation of a company is the approvalof the name by the Registrar of Companies (ROC) in the



State/Union Territory in which the company will maintain itsRegistered Office. This approval is provided subject tocertain conditions: for instance, there should not be anexisting company by the same name. Further, the last words

in the name are required to be "Private Ltd." in the case of aprivate company and "Limited" in the case of a PublicCompany. The application should mention at least foursuitable names of the proposed company, in order of preference. In the case of a private limited company, thename of the company should end with the words "PrivateLimited" as the last words. In case of a public limitedcompany, the name of the company should end with theword "Limited" as the last word. The ROC generally informsthe applicant within seven days from the date of submission

of the application, whether or not any of the names appliedfor is available. Once a name is approved, it is valid for aperiod of six months, within which time Memorandum of Association and Articles of Association together withmiscellaneous documents should be filed. If one is unable todo so, an application may be made for renewal of name bypaying additional fees. After obtaining the name approval, itnormally takes approximately two to three weeks toincorporate a company depending on where the company is

registered.Memorandum of Association of acompany:

Is the constitution or charter of the company and containsthe powers of the company. No company can be registeredunder the Companies Act, 1956 without the memorandum of association. Under Section 2(28) of the Companies Act, 1956the memorandum means the memorandum of association of

the company as originally framed or as altered from time totime in pursuance with any of the previous companies’ lawor the Companies Act, 1956.

The memorandum of association should be in any of the oneform specified in the tables B,C,D and E of Schedule 1 to theCompanies Act, 1956. Form in Table B is applicable in caseof companies limited by the shares , form in Table C is



applicable to the companies limited by guarantee and nothaving share capital, form in Table D is applicable tocompany limited by guarantee and having a share capitalwhereas form in table E is applicable to unlimited

companies.

Contents of Memorandum:

The memorandum of association of every company mustcontain the following clauses:-

Name clause:

The name of the company is mentioned in the name clause.A public limited company must end with the word 'Limited'and a private limited company must end with the words'Private Limited'. The company cannot have a name which inthe opinion of the Central Government is undesirable. Aname which is identical with or the nearly resembles thename of another company in existence will not be allowed. Acompany cannot use a name which is prohibited under theNames and Emblems (Prevention of Misuse Act, 1950 or usea name suggestive of connection to government or Statepatronage.

Domicile clause:

The state in which the registered office of company is to besituated is mentioned in this clause. If it is not possible tostate the exact location of the registered office, the companymust state it provide the exact address either on the day on

which commences to carry on its business or within 30 daysfrom the date of incorporation of the company, whichever isearlier. Notice in form no 18 must be given to the Registrarof Companies within 30 days of the date of incorporation of the company. Similarly, any change in the registered officemust also be intimated in form no 18 to the Registrar of



Companies within 30 days. The registered office of thecompany is the official address of the company where thestatutory books and records must be normally be kept. Everycompany must affix or paint its name and address of its

registered office on the outside of the every office or placeat which its activities are carried on in. The name must bewritten in one of the local languages and in English.

Objects clause:

This clause is the most important clause of the company. Itspecifies the activities which a company can carry on andwhich activities it cannot carry on. The company cannotcarry on any activity which is not authorized by its MA.

Capital clause:

The amount of share capital with which the company is tobe registered divided into shares must be specified givingdetails of the number of shares and types of shares. Acompany cannot issue share capital greater than themaximum amount of share capital mentioned in this clausewithout altering the memorandum.

Association clause:

A declaration by the persons for subscribing to theMemorandum that they desire to form into a company andagree to take the shares place against their respective namemust be given by the promoter.

Articles of Association:

The Articles of Association (AA) contain the rules andregulations of the internal management of the company. The



of the Companies Act have been complied with in respect of the registration of the company and matters precedent andincidental thereto.

4. In addition to the above, in case of a public company, thefollowing documents must also be filed:-

i. Written consent of directors in Form 29 to agree to act asdirectors.

ii. The complete address of the registered office of thecompany in Form 18

iii. Details of the directors, managing director and manager

of the company in Form 32.

Miscellaneous Documents:-

The documents/forms stated below are filed along withMemorandum of Association and Articles of Association onpayment of filing fees (depending on the authorized capitalof the company):# Declaration of compliance duly stamped.

# Notice of the situation of the registered office of the

company. # Particulars of Directors, Manager or Secretary. # Authority executed on a non-judicial stamp paper, infavour of one of the subscribers to the Memorandum of Association or any other person authorizing him to file the



documents and papers for registration and to makenecessary corrections, if any

# The ROC’s letter (in original) indicating the availability of

the name.

Tax Registration:

Businesses liable for income tax must obtain a taxidentification card and number [known as PermanentAccount Number (PAN)] from the Revenue Department. Inaddition to this, businesses liable to withhold tax mustnecessarily obtain a Tax Deduction Account Number (TAN).Both the PAN and the TAN must be indicated on all thereturns, documents and correspondence filed with the

Revenue Department. The PAN is also required to be statedin various other documents such as the documentspertaining to sale or purchase of any immovable property(exceeding Rs. 5 lakh), sale or purchase of a motor vehicle,time deposit (exceeding Rs. 5 lakh), contract for sale orpurchase of securities (exceeding Rs. 10 lakh), to name afew.

Rules Applicable:



Companies (Central Governments') General Rules andForms, 1956.

Fees:

Fee payable depends on the nominal capital of the companyto be registered and may be paid in one of the followingmodes. Cash/postal order (upto Rs.501-), demand draftfavoring Registrar of Companies/Treasury Challan should bepayable into specified branches of Punjab National Bank forcredit.

Time-Limit: It should be submitted before incorporation or within 6months of the name being made available.

Practice Notes :

The declaration has to be signed by an advocate of SupremeCourt or High Court or an attorney or pleader entitled toappear before the High Court or a secretary or charteredaccountant in whole-time practice in India who is engaged in

the formation of the proposed company or person named inthe articles as director, manager or secretary.

The Registrar of Companies has to be satisfied that not onlythe requirements of section 33(1) and (2) have beencomplied with but be also satisfied that provisions relating to



number of subscribers, lawful nature of objects and nameare complied with.

The Registrar will check whether the documents have beenduly stamped and also whether the requirements of other

laws are met.Any defect in any of the documents filed has to be rectifiedeither by all the subscribers or their attorney, or by any onesubscriber holding the power of attorney on behalf of othersubscribers.

This form is to be presented to the Registrar of Companieswithin three months from the date of letter of Registrarallowing the name.

This declaration is to be given on a non-judicial stamp paperof the requisite value. The stamp paper should be purchased

in the name of the person signing the declaration. This declaration is to be given by all the companies at, thetime of registration, public or private.

The place of Registration No. of the company should be filledup by mentioning New Company therein.

The Registrar of Companies will now accept computer laserprinted documents for purposes of registration provided thedocuments are neatly and legibly printed and comply withthe other requirements of the Act. This will be an additional

option available to the public to use laser print besides offsetprinting for submitting the memorandum and articles for theregistration of companies.Where the executants of a memorandum of association areilliterate, he shall give his thumb impression or marks whichshould be described as such by the subscriber or personwriting for him.An agent may sign a memorandum on behalf of a subscriberif he is authorized by a power-of-attorney to do so. In thecase of an illiterate subscriber to the memorandum andarticles of association, the thumb impression or mark dulyattested by the person writing for him should be given. Theperson attesting the thumb mark should make anendorsement on the document to the effect that it has beenread and explained to the subscriber. The Registrar of Companies will not accept xerox copies of the memorandum



and articles of association for the purposes of registration of companies.

Certificate of Incorporation:

Once all the above documents have been filed and they arefound to be in order, the Registrar of Companies will issueCertificate of Incorporation of the Company. This documentis the birth certificate of the company and is proof of theexistence of the company. Once, this certificate is issued,the company cannot cease its existence unless it is dissolvedby order of the Court.

IV. Commencement of Business:



secretary in whole time practice that the above provisionshave been complied with must be filedOnce the above provisions have been complied with, theRegistrar of Companies grants "Certificate of

Commencement of Business" after which the company cancommence its activities.

Reporting Requirements:

Annual Accounts:

The Indian company law does not prescribe the books of accounts required to be maintained by a company. It,however, provides that the same should be kept on accrualbasis and according to the double entry system of accounting and should be such as may be necessary to givea true and fair state of affairs of the company.

The Indian company law requires every company to maintainproper books of account with respect to the following:# All sums of money received and expended and thematters in respect of which the receipt and expenditure takeplace# All sales and purchases of goods by the company

# The assets and liabilities of the company# In case of companies engaged in manufacturing,processing, mining etc, such particulars relating to utilizationof material or labour or other items of cost.

The first annual accounts of a newly incorporated companyshould be drawn from the date of its incorporation upto to



the day not preceding the AGM date by more than 9 months. Thereafter, the accounts should be drawn from date of lastaccount upto the day not preceding the AGM date by morethan 6 months subject to the extension of the time limit in

certain cases. The accounts of the company must relate to afinancial year (comprising of 12 months) but must notexceed 15 months. The company can obtain an extension of the accounting period to the extent of 18 months by seekinga prior permission from the ROC.

The annual accounts must be filed with the ROC within 30days from the date on which the Annual General Meeting(AGM) of the company was held or where the AGM is notheld, then within 30 days of the last date on which the AGMwas required to be held.

Every company is required to maintain proper books of account with respect to all sums of money received andexpended all sales and purchases of goods, the assets andliabilities. Central Government may also specifically requirethe maintenance of certain additional particulars withrespect to certain classes of Companies. The books of account relating to eight years immediately preceding the

current year together with supporting vouchers are requiredto be preserved in good order. Every profit and loss accountand balance sheet of the company (together referred to asfinancial statements) is required to comply with theaccounting standards issued by the Institute of CharteredAccountants of India. Any deviations from the accountingstandards, including the reasons and consequent financialeffect, are required to be disclosed in the financialstatements.

The responsibility for the preparation of financial statements

on a going concern basis is that of the management. Themanagement is also responsible for selection and consistentapplication of appropriate accounting policies, includingimplementation of applicable accounting standards alongwith proper explanation relating to any material departuresfrom those accounting standards. The management is also



responsible for making judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of the entity at the end of the financialyear and of the profit or loss of the entity for that period.

Annual Return:

Every company having a share capital is required to file anannual return with the ROC within 60 days from the date onwhich the AGM of the company was held or where the AGMis not held, then within 60 days of the last date on which the

AGM was required to be held.

Certain Accounting relatedissues:

Depreciation:

The company law in India permits the use of depreciationrates according to the nature of the classes of assets. Assets

can be depreciated either on the basis of straight-linemethod (based on the estimated life of the asset) or on thebasis of reducing balance method. The law prescribes theminimum rates of depreciation. A company may, however,provide for a higher rate of depreciation, based on abonafide technological evaluation of the asset. Adequate



disclosure in the annual accounts must be made in thisregard.

Dividend:

There is no limit on the rate of dividend but there are certainconditions prescribed with regard to computation of profitsthat can be distributed as dividend. Generally, no dividendcan be paid for any financial year except out of the profits of that year after making an adequate provision fordepreciation subject to certain conditions.Dividends may also be distributed out of accumulatedprofits.

Repatriation of profits:

A company has to retain a maximum of 10% of the profits asreserves before the declaration of dividends. These reserves,inter alia, can be subsequently converted into equity by wayof issue of bonus shares. Dividends are freely repatriableonce the investment approval is granted.

Imposition of taxes:

Currently, domestic companies are taxable at the rate of 35.875% (inclusive of surcharge of 2.5%) on its taxable

income. Foreign companies are taxed at a marginally higherrate of 41% (including surcharge of 2.5%). However, in casewhere the income tax liability of the company under theprovisions of the domestic tax laws works out to less than7.5% of the book profits (derived after making the necessaryadjustments), a Minimum Alternate Tax of 7.6875%



(including a surcharge of 2.5%) on the book profits, would bepayable. Domestic companies are required to pay a dividenddistribution tax of 12.8125% (including surcharge of 2.5%)on the dividends distributed during the year.

Companies are required to withhold tax under the domesticlaw from certain payments including salaries paid toemployees, interest, professional fee, payments tocontractors, commission, winnings from games / lottery /horse races etc. Moreover, taxes have to be withheld from allpayments made to non-residents at the lower of ratesspecified under the domestic law or under the applicable taxtreaty, if any.

Penalty:

#Imprisonment up to two years and fine.#Person liable for default.# Person signing the declaration.



CONCLUSION

THE PROJECT HAS HELPED INUNDERSTANDING THE UNDERSIGNEDTOPIC MORE CLEARLY AND GIVEN THEVIVID PICTURE OF COMPANY LAWS ANDISSUES.

THE PROJECT HELPED ME TO DEVELOPINTEREST AND BUILD CONFIDENCE INEXPLORING THE COMPLEX PART OF THEBUSINESS WORLD AND REVEALED ITSUNDUE IMPORTANCE.



BIBLIOGRAPHY

1.) BUSINESS LAW INCLUDING COMPANY LAWBY

S.S.GULSHAN $ G.K. KAPOOR.

2.) www.moneycontrol.com

3.) www.mca.gov.in

4.) www.sebi.gov.in

http://www.mca.gov.in/

http://www.mca.gov.in/

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