3-indian companies act1956

8/10/2019 3-Indian Companies Act1956

1/52

Social & Legal Issues

Indian Companies Act

1956


2/52


Companies Act, 1956

A company implies an association of persons for

some common object(s). According to the act :A

company formed and registered under the companiesact 1956 or under any previous company law. A

company is a contractual entity created by the

members.


3/52


Characteristics of a Company

1. Incorporated Association2. Artificial legal Person

3. Separate legal Entity

4. Perpetual Succession

5. Limited Liability

6. Transferable Shares

7. Common Seal

8. Separate Property9. Capacity to Sue and Being Sued


4/52


Kinds Of Companies

A) On the basis of mode of Incorporation:

Chartered Companies

Statutory Companies

Registered Companies

B) On the basis of Liability of Members

Limited by Shares

Limited by Guarantee

Unlimited

C) On the basis on the number of members

Private

Public

D) Others: Govt. Companies, Foreign company, Holding andsubsidiary company


5/52


Distinction between private and Public

CompanyPvt. Company Public Company

Minimum number of members

to form a company is 2

Minimum number of members to

form a company is 7

Max. number of membersshould not exceed 50 No restriction

Right to transfer share is

restricted

Freely transferable

Prospectus can not be issued Prospectus is issued

Commence business

immediately after getting the

certificate of incorporation

Can start only after receiving the

certificate to commence business

from registrar of companies

Numbers of Directors must beat least 2 Must have at least 3


6/52


Distinction between private and Public Company

Directors consent to work as aDirector with Registrar is not

necessary

Necessary

Number of Directors can be

increased to any number

Not more than 12 without the

approval of the central govt.

Directors are required to retire byrotation

At least 2/3rdof Directors mustretire by rotation

Managerial RemunerationNo

restriction

Not more than 11% of net profit.(

not mere than 5% to a sgl.Director)

Can be registered with a paid up

capital of Rs. 1 lakh

Rs 5 Lakh

Can not accepts deposits from

public

Can accept deposits from public

Need not hold statutory meeting or

file a statutory report

Must do so


7/52


Lifting The Corporate Veil The circumstances under which the courts may lift the corporate

veil are:

1. Under Statutory Provisions

Reduction of Membership

Misrepresentation of Prospectus

Fraudulent Conduct of Business Failure to return application money

Mis-description of name

Non-payment of tax

Liability of ultra -Vires acts


8/52


Lifting of the Corporate Veil

2) Under Judicial Interpretations:

For determining the enemy of the company: Daimler

Company vs Continental Tyre rubber company

For the Benefit of revenue-Sir Dinshaw Maneckjee Petil,Re

For prevention of Fraud and Improper conduct

Others


9/52


Formation and Incorporation of a Company

Promotion Registration/Incorporation

Flotation/Raising of Capital

Commencement of Business


10/52


Promotion

Promotion refers to the entire process through which a

company is brought into existence.

It starts with the conceptualization of the birth of thecompany

with an objective for which it is to be formed.

The persons who conceive the company and invest the initial

funds, are known as promoters.


11/52


Registration/Incorporation of Company

The Promoters of the company will submit the following

documents with the Registrar of Companies for the

registration of company:

Memorandum of Association

The article of association

A list of persons who have consented to act as directors

of the proposed company

A statutory declaration of compliance.

Any agreement with the relevant persons of the proposed

company.


12/52


Registration/Incorporation of Company

The Registrar of the Companies is to allot a Corporate Identity Number to each company registered on or after

November 1, 2000.

After scrutiny of all the documents a certificate of

incorporation is issued


13/52


Flotation and Raising of Capital

A public company can take either of the followingsteps:

a) Issue a prospectus to invite public for

subscription

b) Deliver a statement in lieu of prospectus where

the

company has either not issued the prospectus or it has issued the prospectus , has not proceeded to allot any

shares offered to the public for subscription


14/52



Every private company and a company not limited by shares can

commence business immediately on receipt of certificate of

incorporation. But a public company limited by shares is debarred

from commencing business on borrowing money without the

certificate of commencement of business

Where a company has issued Prospectus The minimum subscription in cash has been raised

Every director of the company has paid in cash his qualification

shares , a proportion payable on application and allotment on the

shares offered for public subscription.

No money is liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by

reason for any failure to apply for, or to obtain permission for the

shares of debentures to be dealt in any recognized stock exchange


15/52



A statutory declaration duly verified by one of the directors or the

secretary in the prescribed form that the above conditions have

been complied with, is filed with the registrar

Where the company has not issued prospectusit has to satisfy the

following conditions:

A statement in lieu of the prospectus if filed with the Registrar Every director of the company has paid in cash his qualification

shares , a proportion payable on application and allotment on the

shares.

A statutory declaration duly verified by one of the directors or the

secretary in the prescribed form that the above conditions have been complied with, is filed with the registrar.

When the company has compiled with the above conditions the

Registrar will issue a certificate to commence business.


16/52



Meaning and Importance MOA of a company is its charter and defines the

limitations of the

powers of the company

It is not unalterable Content:

i) Name of the Company: with limited and privatelimited as the

last word(s) of the name

ii) Registered Office iii) Objects of the company : main objects , Incidental and

ancillary

objects, other objects not included in first two.


17/52



iv) Liability: A declaration is made that the liability of

the members is limited.

v) Capital-The amount of authorized share capital

divided into shares if fixed amount vi) Association or Subscription: The initial members are

called subscribers, who sign the memorandum in the

presence of one witness

l l


18/52


Articles of Association

Article of Association of a company are its bye laws. It controls the internal management of the company

and defines the powers of its offices.

l l


19/52


Difference of MoA and AoA

Regulations for internalMgt

Rules for carrying out theobjects of Co.

Subordinate to thememorandum

Company limited byshares need to have it.

Act ultra-vires but intra-vires the memorandumcan be ratified

Charter of Company

Defines the scope of

activities

Supreme Document Must for every company

Strict restrictions, some

alterations may require

sanction of central govt. Act ultra-vires is wholly

void and cant be ratified

l L l


20/52


Doctrine of Ultra -Vires

Ultra Vires means beyond the powers.

Ashbury Railway Cairrageand Iron Company Ltd vs

Riche

Doctrine of Constructive Notice

The memorandum and articles when registered with the Registrar becomes public document and accessible to

all.

Therefore there is a presumption that any outsider

dealing with the company has read and understood these

documents. This is known as doctring of constructive notice.

Kotla Venkatswamy vs C Ramamurthy.

S i l & L l I


21/52


Doctrine of Indoor Management

Persons dealing with the company in good faith have

a right to assume that the internal requirements

prescribed in public documents (memorandum and

articles have been observed.

Exceptions:

Where the outsider had knowledge of irregularity.

In case of forgery

Negligence on the part of the outsider

Acts outside the scope of apparent authority

Rayal British Bank v.Turquand

S i l & L l I


22/52


Registration of the Company

The promoters file the memorandum of association

article of association and a declaration by a lawyer

that the requirements of the act have been followed

with the Registrar of the Companies.

Registrar of the Companies issues the Certificate of

Incorporation of the company.

Distinct Legal Entity

S i l & L l I


23/52


Prospectus

Prospectus means any document described or

issued as a prospectus and includes any notice,

circular, advertisement or other document

inviting offers from the public for the subscription and purchase of shares in,or

debentures of a body corporate.

S i l & L l I


24/52


Prospectus

Pre-Requisites of Prospectus

Prospectus must be dated Prospectus must be signed

Prospectus must be registered

Golden rule of the Prospectus

There should be an honest disclosure of all facts. The

true nature of the companys venture to be disclosed.

S i l & L l I


25/52


Prospectus

Deemed Prospectus- When a company allots shares or

debentures to the public through the medium of Issue Houses,

then the issue houses invite subscription from the public

through their own offer document. This is also called

prospectus by implication. Statement in Lieu of Prospectus- Where a public company

does not invite public to subscribe for its shares, but arranges

to get money from private sources>The promoters here need

not issue a prospectus but are required to draft prospectus

Red Herring Prospectus- is a prospectus ,which does not

have complete particulars on Price of securities offered and

quantum of securities offered. E.g.-Jet Airways, Suzlon


26/52



27/52


Member/Shareholder

S.no Shareholder Member

1 Is a member May not be a

shareholder because

the company may not

have a share capital

2 Person who owns a bearer share

warrant is a shareholder

Struck off from the

list

3 A legal representative of a member Applies forregistration

4 No share are allotted to a subscriber

to the memorandum

Subscriber to a

memorandum



28/52


Who can be a member

Minor

Insolvent

Partnership Firm Foreigner

Company

Trade Union or Society President of India



29/52


Modes of acquiring membership/Index of a member

Membership by subscription

Membership by application and registration

A company with more than fifty members shall keep an index

of members



30/52


Rights of member / Register of Member

Statutory Rights

Contractual/otherwise

Name address and occupation

Share held by each member and the amount paid up on those

shares

Date at which each person was entered in the register as amember

Date at which any person ceased to be a member



31/52


Termination of Membership

Transfers his shares

Shares are forfeited by the company

Surrenders his shares

Shares are sold by the company to enforce its lien Dies

Is adjudged insolvent

Shares have been redeemed by the company

Rescind the contract of membership on fraud ormisrepresentation



32/52


Director

A company is an artificial legal person and the directors as a

body endow the artificial legal person with human face than

can act and react.

The person through whom a company acts and does its

business, and termed as director.

An individual can be appointed as director, no corporate

body corporate, association or firm

Cannot hold a office of more than fifteen companies



33/52


Qualifications of a director

No academic, professional or share qualification

Articles may provide for any qualifications

Where share qualification is fixed by articles then the act

provides

a) Qualification shares must be taken within 2 months after

appointment

Nominal value of qualification shares must not exceed Rs.

5000 or one share where its value exceeds Rs. 5000

Share warrants will not count for this purpose



34/52


Appointment of Directors

First director

Appointment of directors by company

Appointment of directors by the board

Appointment of directors by third parties (nominee director) Appointment of directors by proportional representation

Appointment by central government

Appointment by small shareholders

Consent for appointment

Written consent is required to be signed and files with the

registrar and the company



35/52


Removal of Directors

By shareholders

By Central Government By Tribunal



36/52


Powers of Board of Directors

The board of directors of a company shall be entitled toexercise all such powers and to do all such acts and things, asthe company is authorized to exercise and do.

The following powers are:

The power to make calls

The power to issue debentures

The power to borrow money otherwise than on debentures

The power to invest funds

The power to make loans

The power to buy back of shares



37/52


Power to be exercised in the general meetings

Sale, lease or disposal of the undertaking

Showing any concession regarding payment of debts

Make investment of the amount of compensation received

Contribution to charitable

Borrowing monies exceeding the aggregate of the paid upcapital and free reserves of the company



38/52


Duties /Limitations

Good faith

Reasonable care

Disclose interest

Participate in the communities

Attend board meetings

Actions malafide

Incompetent to act

Deadlock in the board



39/52


Company meeting

General meeting

Requisites of valid meeting Notice of meting must be proper and adequate

Chairman of the meeting

Quorum

Voting

Agenda Minutes



40/52


Kinds of MeetingsMeetings

of a Company

Shareholders DirectorsCreditors/

Debenture holders

General Meetings Class meetings

Statutory MeetingsAnnual General

Meetings

Extra Ordinary

Meetings



41/52

S c & L g Iss s

Statutory Meetings

Object

When held

Not required to be held Notice

Statutory report

In case of default



42/52

S & g ss s

Annual general meeting

Which company to hold

When to be held

Gap between two AGM

First AGM

Subsequent AGM

Extension of time maximum 3 months

Business to be transacted

Notice 21 days Default



43/52

& g

Board Meetings

When to hold:Atleast once in every three calendar months and

4 meetings every year

Notice: To be given to every director in writing. No form or

period of notice is laid down. Usually a weeks notice is

sufficient. The notice must state the date, time and place ofmeetings.

Quorum:1/3 of the total strength or two, whichever is higher.

Passing of resolution by circulation is permissible



44/52

g

Motion

A proposal under consideration by members in a meetingbefore it is voted upon

Rules

Should be positive in terms and should always be in writing Within power, scope and relevant to business

Comply with the provisions of the Act, memorandum andarticles

Duly proposed by any member in a meeting Should not be withdrawn before consent



45/52

g

Resolution

Any motion voted upon and agreed to in a meeting and entered

in minutes. A motion passed with or without amendment is

called resolution

Types of Resolution

Ordinary resolution

Special resolutionResolutions requiring special notice



46/52

g

Winding up of a Company

Company dissolved

Winding up a company is a process whereby its life is

ended and its property administered for the benefit of itscreditors and members. An administrator called

liquidator, is appointed and he takes control of the

company, collects its assets, pays its debts and finally

distributes any surplus among the members in

accordance with their rights



47/52

g

Winding up of a Company

Winding up of a company differs from insolvency of an

individual in as much as a company cannot be made insolvent

under the insolvency law. Even a solvent company can be

wound up.


48/52



49/52

g

Grounds for winding up by the Tribunal (NCLT)

By the company passing a special resolution.

Default in holding statutory meeting or in delivering statutoryreport to the registrar

Failure to commence business within a year from the date of

incorporation or suspension of business for a whole year Reduction in membership below the minimum required

Inability to pay its debts of Rs 1 lakh

Tribunal is of the opinion that it is just andequitable Default of companys filing its balance sheet and profit and

loss account on annual return for any five consecutivefinancial years



50/52

Grounds for winding up by the Tribunal (NCLT)

If the company has acted against the interests of sovereignty

and integrity of India, the security of the state, friendly

relations with foreign states public order, decency or morality.

If the Tribunal is of the opinion that the company should be

wound up as it had become sick and is unlikely to become

viable in future



51/52

Who may petition for winding up

The company

Any Creditor

Any Contributor

Any combination of creditor, contributory acting jointly or

separately The registrar

Any person authorized by the central government

The official liquidator

The central government and the state government Workers of a company cannot prefer a winding up petition

against the company



52/52

Liquidator

To conduct proceeding in winding up

To make a report

To take custody of companys property

To comply with directions of the creditors or contributories or

the committee of inspection To summon meeting of creditors and contributories

To obtain directions from the tribunal

To keep statutory books

To get accounts audited Central governments control of liquidator

Information as to a pending winding up

3-indian companies act1956

Documents