Company LawNature of a company:A Company, in common parlance means a group of persons associated together for the attainment of a common end.

Definition of a Company

A Company is defined as an artificial person created by Law with perpetual succession and a common seal.

Characteristics of a Company

It is a separate legal entityLimited liabilityPerpetual successionCommon sealTransferability of sharesSeparate propertyCapacity to sue

Kinds of CompaniesCompanies can be classified into various kinds on the following basis.On the basis of incorporation:-Statutory Companies: These are companies createdby a special act of the Legislature

Eg. Reserve Bank of India State Bank of India Life Insurance CorporationIndustrial Finance Corporation

Registered Companies: These are companies which are formed and registered under the companies Act 1956.

On the basis of liabilityCompanies with liability may be:Companies limited by shares orCompanies limited by guarantee

2) Companies with unlimited liability: 1. Where the Liability of the members of a company is limited to the amount unpaid on the shares, such a company is known as company limited by shares.2. Where the liability of the members of a companyis limited to a fixed amount which the members undertaketo contribute to the assets of a company in the event of itsbeing wound up, such a company is known as company limited by a guarantee.Contd

3. Unlimited Companies: A Company without limited liability is known as company with unlimited liability. In such a company every member is liable for the debts of the company as in a partnership is proportion to his interest in the company.

III On the basis of Number of members.

On the basis of number of members a company can be:

1) Private Limited Company 2) Public Limited Company

A private company is a company which has a minimum paid up capital of Rs. One lakh or such higher paid up capital as may be prescribed by its articles.

1. Restricts the right to transfer its shares if any. This restriction is needed to preserve the private character of a company

2. Restricts the number of members of the company to a maximum of 50.Contd

3. Prohibit any invitation to the public to subscribe for any shares or debentures of the company

4. Prohibits any invitations or acceptances of deposits from persons other than its members, directors or their relatives.

Public Limited Company:

1. Is not a private company

2. Has a minimum paid up capital of Rs.5,00,000 or such higher paid up capital as may be prescribed.

Distinction between Public Limited Company and Private Limited Company

1.Minimum number:- The minimum number of persons required to form a public company is 7. It is 2 in case of a private company.

2.Maximum number:- There is no restriction on maximum number of member in a public company, whereas the maximum number cannot exceed 50 in a private company.Contd

3.Minimum capital:- A public company must have a minimum of Rs. 5, 00,000 as capital. A private limited company must have a minimum capital of Rs. 1,00,000/-

4. Number of Directors:- A public company must have at least 3 directors whereas private directors must have 2 directors.Contd

5. Restriction on appointment on directors:-In the case of public company the directors must file wit the Registrar consent to act the directors or sign as undertaking for their qualification shares. The directors of a private company need not to do so.

6.Restriction on Invitation to subscribe for shares:- A public company invites the general public to subscribe for the shares in or the debentures of the company. A private company by its articles prohibits any such invitation to the public.Contd

7.Transferability of shares or debentures:- In a public company the shares and debenturesare freely transferable. In a private company the right to transfer shares and debentures is restricted by the articles.8.Special privileges:-A private company enjoys some special privileges. A public company enjoys no such privileges.

9.Quorum:-If the articles of a company do not provide for a larger Quorum, five members personally present in the case of Public company is Quorum for a meeting of the company. It is 2 in the case of private company.

10.Managerial remuneration:- Total Managerial Remuneration in a public company cannot exceed 11% on the net profits. No such restriction applies to a private company.

IV On the basis of control.

On the basis of control companies can be classified into:1. Holding Companies and2. Subsidiary Companies

Holding Companies: A company is known as the holding company ofanother company if it has control over that other company. A company is deemed to be the holding company of another if, but only if, that other is its subsidiary. Now the question is: what is a subsidiary company?

Subsidiary company:A company is known as a subsidiary of another company when control is exercised by the latter (called holding company) over the former called a subsidiarycompany.

V On the Basis of ownership:

On the basis of ownership, a company may be a Government company , or Non-Government Company.The latter is controlled and operated by private capital.

Government CompanyA Government company means any company in which not less than 51 percent of the paid-up shares capital is held bya. the Central Government orb. any state Government or Government ,orc. Partly by the Central Government and partly by one or more State Governments. For example, State Trading Corporation of India Ltd. And Minerals and Metals Trading. Corporation of India Ltd are Government companies. The subsidiary of a Government company is also a Government company.

Formation of a company

Before a company is formed, certain preliminary steps are necessary e.g. whether it should be a private company or a public company, what its capital should be, and whether it is worthwhile forming a new company or taking over the business of an already established concern. All these steps are taken by certain persons known as Promoters. They do all the necessary preliminary work incidental to the formation of a company.

Incorporation of company:

Any 7 or more persons (2 or more in case of a private company) associated for any law full purpose may form an incorporated company, with or without limited liability. They shall subscribe their names to a Memorandum of Association means signing the Memorandum.The Memorandum is a token of their agreement to associate themselves.

A company for the purpose of incorporation shall file before the Registrar of Companies an application along with the following documents and necessary fees.

1.Memorandum of Association duly signed by the subscribers.2.Articles of Association duly signed by the subscribers.

3.Agreement if any which the company proposes to enter in to with any individual for appointment as its managing or whole time Director or Manager.

4.A list of the directors who have agreed to become the First Directors of the company and their written consent to act as Directors and take up qualifying shares.

5.A declaration stating that all the requirement of the companies Act and other formalities relating to registration have been complied with.

Certificate of Incorporation:

When the requisite documents are filed with the Registrar, the Registrar shall satisfy himself that statutory requirement regarding requisition have been duly complied with.

If the Registrar is satisfied, he retains and registers the memorandum, the articles and other documents filed with him and issues a certificate of the incorporation. This is the proof of the formation of a company.

Memorandum of AssociationMemorandum of Association is the charter of the company and it lays down the area of operation of the company. It is a document of great importance which contains the fundamental conditions upon which alone the company is allowed to be operating.

CONTENTS OF THE MEMORANDUM:The name clauseThe registered office clauseThe objects clauseThe capital clauseThe liability clauseThe association clauseThe declaration clause

ARTICLES OF ASSOCIATIONArticles of Association are the rules, regulations & bye-laws for the internal management of the affairs of the company.They are framed with the object of carrying out the aims & objects as set out in the memorandum of association.

The article are next in importance to the memorandum of association. In framing the articles of a company care must be taken to see that regulations framed do not go beyond the powers of the company itself as contemplated by the memorandum of association.

CONTENTS OF THE ARTICLESShare capital, rights of share holders, variation of these rights, payment of commissions, share certificatesLien on sharesCalls on sharesTransfer of sharesTransmission of sharesForfeiture of sharesConversion of shares into stockShare warrantsAlteration of capitalGeneral meetings & proceedings.Contd

Voting rights of members, voting & poll, proxiesDirectors, their appointment, remuneration, qualifications, powers & proceedings of board of directors.ManagerSecretaryDividends & reserves.Accounts, audit & borrowing powers.Capitalization of profits.Winding up.

Distinction between Memorandum of Association & Articles of Association

Memorandum of AssociationArticles of AssociationIt is the charter of the company indicating the nature of its capital. It also defines the companys relationship with outside world.They are the regulations for the internal management of the company & are subsidiary to the memorandumIt defines the scope of the activities of the company, or the area beyond which the actions of the company cannot go.They are the rules for carrying out the objects of the company as set out in the memorandum

It, being the charter of the company, is the supreme documentThey are subordinate to the memorandum. If there is a conflict between the articles & the memorandum, the latter prevails.Every company must have its own memorandumA company limited by shares need not have articles of its own. In such a case, Table A appliesAny act of the company which is ultra vires the memorandum is wholly void & cannot be ratified even by the whole body of shareholdersAny act of the company which is ultra vives the articles (but in intra vires the memorandum) can be confirmed by the shareholders

DOCTRINE OF ULTRAVIRESA company has the power to do all such things as are:Authorised to be done by the companies act, 1956Essential to the attainment of its objects specified in the memorandumReasonably & fairly incidental to its objects; every thing else is ultravires the company. Ultra means beyond & Vires means Powers. The term ultravires a company means that the doing of the act is beyond the legal power & authority of the company.

DOCTRINE OF CONSTRUCTIVE NOTICEEvery outsider dealing with a company is deemed to have notice of the contents of the Memorandum & the Articles of Association. These documents, on registration with the Registrar, assume the character of public documents. This is known as constructive notice of Memorandum and Articles.

DOCTRINE OF INDOOR MANAGEMENTThere is one limitation to the doctrine of constructive notice of the Memorandum & the Articles of company. The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned, everything has been regularly done. They are presumed to have read these documents & to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the memorandum & the Articles. They can presume that all in being done regularly. This limitation of the doctrine of constructive notice is known as the doctrine of indoor management.

PROSPECTUSProspectus is defined as any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate.Prospectus must be in writing & it is an invitation to the public

CONTENTS OF THE PROSPECTUSGeneral informationCapital structure of the companyTerms of the present issueParticulars of the issueCompany, management & projectParticulars in regard to the company and other listed companies under the same managementOutstanding litigationsManagement perception of risk factors

The prospectus should be dated & signed by the directors.

MISSTATEMENTS IN PROSPECTUS & THEIR CONSEQUENCESIf there is any misstatement of a material fact in a prospectus or if the prospectus is wanting in any material fact, there may ariseCivil liabilityCriminal liability

Liability for misstatements in prospectus

COMMENCEMENT OF BUSINESSA private company can commence business immediately after its incorporation. A public company can do so only after it obtains a certificate of commencement of business.

SHARE CAPITALShare capital means the capital raised by a company by the issues of shares.KINDS OF CAPITAL:Authorized / Nominal / Registered capitalIssued capitalSubscribed capitalCalled up capitalPaid up capitalUncalled capitalReserve capital

KINDS OF SHARESThe company may generally issue 2 kinds of shares. Equity shares Preference shares

Equity share means a share with voting rights, & differential rights as to dividend.Preference shares means those shares which carry preferential rights regarding payment of dividend & repayment of capital on winding up.

KINDS OF PREFERENCE SHARESCumulative preference sharesNon-cumulative preference sharesParticipating preference sharesNon-participating preference sharesConvertible preference sharesNon-convertible preference sharesRedeemable preference sharesIrredeemable preference shares

MEMBERSHIP IN A COMPANYThe members or share holders of the company are the persons who collectively constitute the company as a corporate entity. A registered share holder is a member but a registered member may not be a share holder.A person who owns a bearer share warrant is a share holder but he is not a member as his name is struck off the register of members.This means that a person can be a holder of shares without being a member. A member may be a share holder but a share holder may not be a member.Contd

A legal representative of a deceased member is not a member until his name is registered. He is however, a share holder even though his name doesnt appear in the register of members

HOW TO BECOME A MEMBERMembership by subscriptionMembership by application & registrationMembership by beneficial ownershipMembership by qualification shares

CESSATION OF MEMBERSHIPA person may cease to be the member of a company by Act of the parties, Operation of law

Cessation of membership by act of the parties. A person may cease to be the member of a company If he transfers his shares to another personIf his shares are forfeitedIf the company sells his shares under some provision in its Articles (eg: to enforce a lien)If he rescinds the contract to take shares on the ground of mis-representation in the prospectus or on the ground of irregular allotmentIf redeemable preference shares are redeemedIf he surrenders his shares, where surrender is permittedIf share warrants are issued to him in exchange of fully paid shares

Cessation of membership by operation of law:This covers the following cases-InsolvencyDeathSale of shares in execution of a decree of a courtWinding up of the company

Transfer & Transmission Of SharesDistinction between transfer & transmission

Transfer of sharesTransmission of sharesIt is effected by a voluntary act of the partiesIt takes place for considerationThe transferor has to execute a valid instrument of transferAs soon as the transfer is complete, the liability of the transferor ceases.It takes place by operation of law, eg: due to death, insolvency or lunacy of a memberNo consideration is involvedThere is no prescribed instrument of transferShare continue to be subject to the original liabilities

MANAGEMENT AND ADMINISTRATION OF A COMPANYMEETINGS AND PROCEEDINGS:The various meetings of a company may be classified as followsMeetings of share holders. These meetings may be:General meetings which include Statutory meetingsAnnual general meetings &Extra ordinary meetings2. Class meetings of share holdersMeetings of creditors and debenture holdersMeetings of directors

QUORUM FOR MEETINGQuorum means the minimum number of members who must be present in order to constitute a valid meeting and transact business threat. The quorum in generally fixed by the Articles. If the Articles of a company do not provide for a longer quorum, the following rules apply:5 members personally present in the case of a public company (other than a deemed public company), & 2 in the case of any other company, shall be the quorum for a meeting of the company. For the purpose of quorum a person may be counted as 2 or more members if he holds shares in different capacities. eg: as a trustee and also in his own right.

Company Management The directors are the brain of a company:- Director includes any person occupying the position of director, by whatever name called. The important factor to determine whether a person is or is not a director is to refer to the nature of the office and its duties. Only individuals can be directors:-

Number of directors:-Minimum number:- Public limited company shall have at least 3 directors and a private limited company shall have at least 2 directorsMaximum number:- Articles of Association of a company may prescribe the maximum and minimum number of directors for its Board. The number so fixed may be increased or reduced within the limits prescribed by the Articles by an ordinary resolution of the company in general meeting. Any increase in number of directors beyond the maximum permitted by the Articles shall be approved by the Central Government. But where the increase in number does not make the total number of directors more than 12, no approval of the Central Government is needed.

Position of Directors:- Directors as agents:- Directors are not employees:- Directors are not prevented from being employees by entering into a contract of employment with the company. For certain matters under the Companies Act, the directors are treated as officers of the company. Directors are treated as trustees. True position is that directors are in a fiduciary relationship.

No person to be a director of more than 15 companies.

Removal of Directors:- Directors may be removed by The shareholders, The Central Government, The Company Law Board,

Managerial Remuneration:-The total managerial remuneration of the directors and the manager in respect of any financial year shall not exceed 11 per cent of the net profit of the company for that financial year.

Winding up of a companyWinding up of a company is a process of putting an end to the life of the company. It is a proceeding by means of which a company is dissolved and in the course of such dissolution, its assets are collected, its debts are paid off out of the assets of the company and if any surplus is left, it is distributed among the members in accordance with their rights

Modes of Winding upCompulsory winding up by courtA company may be wound up by an order of court under following grounds,If the company has by a special resolution resolved that it may be wound up by the court.Default in delivering statutory reportFailure to commence business within a year of incorporationIf the number of members is reduced below 7 in case of a public Ltd company and below 2 in case of a Pvt Ltd companyFailure to repay its debtsOn just and equitable grounds.

Voluntary Winding upThe object of a voluntary winding up is that the company and its creditors are left to settle their affairs without going to the court, but they may apply to the court for any directions or orders if and when necessary.It may be :Members voluntary winding upThis type of winding up takes place only when the company is in a position to pay its debts. Declaration of solvency is made by the director. A meeting of members is called and a liquidator is appointed. No committee of inspection is formed. The liquidator can exercise some powers with thesanction of a special resolution of the company. The meeting of members is again called on thecompletion of the proceedings of winding up.Contd

Voluntary Winding upCreditors voluntary winding up.This type of winding up takes place only if the company is not in a position to pay off its debts. Here the meeting of the members and the creditors is called. The liquidator is appointed by the creditors and the remuneration is fixed by the committee of inspection. The liquidator exercises power with sanction of the court.

Winding up subject to supervision of the courtAt any time after a company has passed a resolution for voluntary winding up, the court may make an order that the voluntary winding up will continue, but subject to the supervision of the court and with such liberty of creditors, contributors and others to apply to the court on such terms and conditions as the court thinks fit.

Consumer Protection Act, 1986Objectives of the actRight of protection to life and propertyRight to be informedRight to chooseRight to be heardRight to redressRight to education

DefinitionsConsumer means a person who buys any goods for a consideration which has been paid or promised, or partly paid and partly promised or under a system of deferred payment.Buyer of goods for a consideration is a consumerContd

Person who hires services is a consumerGoods means every kind of movable property other than actionable claims and money, shares, growing crops, things attached to the landService means service made available to any potential user and includes provision of facilities in connection with banking, insurance, transport, supply of electricity etc

Who are not consumersA person who purchased goods for resaleA person who purchased goods for commercial purposeA person who obtains services without considerationA person who obtains services under a contract of personal service

Consumer disputesDefect Manufacturing defectInstruction defect

Complaints are relied upon evidencesExpert opinionManufacturers recordsGovernment and industry standardPost accident changesReport of Govt. and other agenciesPast records

ComplaintsComplaint means any allegation in writing made by complainant that: as a result of any unfair trade practice or restrictive trade practice, adopted by trader, complainant has suffered loss or damage, services mentioned by complainant suffer any deficiency, excess of price or under any law for the time being in force.

Who can make complaintsThe consumer to whom such goods sold or delivered or such service provided.Recognized consumers association registered under lawCentral or state government

How to draft a complaintName and description and address of the complainantName and description and address of the opposite partyThe facts related to complaint and when and where it aroseDocuments

To whom the complaint is to be madeDistrict forumState commissionNational commission

How to file a complaintNo fees have been prescribedComplainant or authorised agent can present the complaint in personThe complaint can be sent by post to the appropriate forum

UNFAIR TRADE PRACTICESThe Consumer Protection Act has adopted the definition of Unfair Trade Practices as given in the MRTP Act.According to section 36-A of the MRTP Act, 1969, whenever the methods listed in Section-36 A are adopted for the purpose of promoting the sale, use or supply of any goods, or for the provision of any services and thereby some loss or injury is caused to the consumers or such goods or services, it is an unfair trade practice

The practices mentioned in section 36-Aare grouped into the following five categoriesMisleading Advertisement and False RepresentationSales offer of bargain price Schemes offering Gifts or PrizesNon-Compliance of prescribed StandardsHoarding, destruction or refusal

INGREDIENTS OF UNFAIR TRADE PRACTICESThe trade practices must consist of any of the practices listed above.The purpose of such trade practice must be to promote the sale, use or supply of any goods or provision or of any services.The trade practices must have caused loss or injury to the consumer whether by eliminating or restricting competition.

RESTRICTIVE TRADE PRACTICES (RTP)According to section 2(nn) of the Consumer Protection Act Restrictive Trade Practices are those trade practices which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as a condition precedent for buying, hiring or availing of other goods or services.

CONSUMER DISPUTES REDRESSAL AGENCIESFor the purpose of speedy and simple settlement of consumers disputes section 9 of the Act, 1986 provides for the establishment of the following three Consumer Disputes Redressal Agencies:Consumer Disputes Redressal Forum (District Forum)Consumer Disputes Redressal Commission (State Commission)National Consumer Disputes RedressalCommission (National Commission)

District ForumEstablished under section 9(2) of the Consumer Protection Act, 1986. This is established by the state government in each district of the state by means of a notification. If reasonable and necessary, the State Government can establish more than one district forum in a district.

State CommissionEstablished by the State Government with the prior approval of the Central Government, in the State notification under Section 9(5) of the Consumer Protection Act.National CommissionIn exercise of the powers conferred under sec 9(c) of the Consumers Protection Act, the Central Government established a National Consumer Redressal Commission to be known as the National Commission by notification