company law unit-i
TRANSCRIPT
COMPANY LAW
UNIT-I
1. Define the term “company”.
Section 2(20) of the 2013 Act defines the term “company” to mean”
a company incorporated under the companies Act 2013 or any
previous company law”
2. What is Private Company?
“Private Company “ means a company having a minimum paid up
share capital of one lakh rupees or such higher paid up share capital
as may be prescribed.
3. What are statutory companies?
A company formed by a special Act passed either by the Central or
State Legislature is called a statutory company. These companies are
usually formed to carry out some special public undertakings
requiring extraordinary powers and privileges
4. What are Registered Companies?
Companies registered under the companies Act 1956, is called
registered companies. Such companies come into existence when
they are registered under the companies Act, and a certificate of
incorporation is granted to them by the Registrar.
5. What is holding company?
Sec 4(4) a company shall be deemed to be holding company of
another it but only if that other is its subsidiary. Hence, a company
has control over another company; the controlling company is
known as holding company.
6. Who is a Company Secretary?
A company Secretary means “a person who is a member of the
Institute of company Secretaries of India”
Sec 2(45) of the companies Act 1956, ‘Secretary means any individual
possessing the prescribed qualifications, appointed to perform the
duties which may be performed by a secretary under this Act.
PART –B
1. Difference Private Company and Public Company.
Private Company
• Its minimum number of persons is two and the maximum is 50
• It makes the use of private limited after its name
• It can commence its business operation after getting certificate
if incorporation
• There is no legal restriction on director’s remuneration
Public Company-
• It’s minimum number of persons is seven and the maximum is
unlimited
• It makes the use of the word limited after the name
• It has at least 3 directors and they are subject to retire by
rotation
• The directors cannot draw remuneration more than 11 percent
of the net profit of the company.
2. What are the statutory provisions as to lifting of corporate veil?
A company is an artificial person different for its members and
directors. In the eyes of law it has a separate corporate personality. It
has its own corporate name. It works under that name. In normal
circumstances company cannot be considered as agent or trustee of
its members.
Company cannot work or think on its own. Its directors and members
are its mind and body. Therefore company can’t do anything wrong
own its own. Thus for any wrong act in the name of company,
members /directors can be held liable. This concept is called “Lifting
of Corporate Veil”
3. What are the restrictions on the powers of a Secretary?
A Company secretary enjoys certain rights and power but there are
some restrictions to his rights and power, which are given
Distribution and transfer of shares: A Company Secretary can’t
distribute or transfer any share if he is not authorised by the board
of directors.
Company Agent: company secretary cannot attend any meeting as a
company agent without any consent of board of directors. Here
requires authority from the board of directors to sign any contract on
behalf of the company.
Taking loan: A company secretary cannot take loan in the name of
the company. If he does so, company will not be liable for such loan.
4. Explain the qualities of a company Secretary.
� Honesty & Integrity
� Loyalty and courtesy
� Punctuality
� Tactfulness and cautiousness
� Sense of discipline and responsibility
� Professional minded
PART-C
1.Define a private company. State the special privileges of a private
company.
Private company
Section 2 (68) defines the private company means a company having
a minimum paid up share capital of one lakh rupees or such higher
paid up share capital as may be prescribed.
Members:
A private company can be started by two persons only,
whereas seven persons are required to start a public company.
Commencement of business:
A Private company can commence business immediately after its
incorporation. It is not required to obtain the certificate of
commencement of business
Prospectus:
A private company is not required to issue or file a prospectus
Statutory meeting:
A private company is not required to hold a statutory meeting or to
file statutory report with the registrar
Directors
A private company can have only two directors. It is exempted from
restrictions relating to the appointment, retirement of managerial
personnel.
2.Discuss the types of secretaries.
Private Secretary
A private secretary is a person who is employed for performing
some personal works of his employer.
Secretary of an association:
This type of secretary acts either as the chief executive officer of as
the representative or as the chief adviser of the association.
Secretary of embassy
Every embassy or high commission or foreign mission appoints a
secretary for performing some of its important functions. In absence
of the ambassador or high commissioner; he runs the embassy or
commission office.
Secretary of a cooperative society:
The managing committee of every cooperative society generally
appoints a secretary to
Administer the society on their behalf.
Secretary of local body
When a person is appointed as the executive head of any municipal
corporation or district board or of any local body.he is designated as
the secretary of that boday.
3.Discuss the rights and powers of a company secretary.
a.supervision and control
As a head of the office , a company secretary has the rights to
supervise, direct and control all office activities of subordinate
offices.
b.Signing authority:
Being a principal officer, a company secretary can sign contracts,
proceedings of the company meeting, files and documents on behalf
of the company.
C.Exercising power: He has the right to apply power as authorised by
the board of directors
d.Issuing testimonial:A Company secretary can issue testimonials to
employees on behalf of the company.
e. Claiming salary and damages:
As per contract, he has the right to claim his salary and other
allowances. He can also take legal action against the company if
there is any breach of contract.
F.Preferential creditor:
During winding up of a company, company secretary can claim his
legal dues as like as preferential creditor.
G.Distribution and transfer of shares:
A company secretary can’t distribute or transfer any share if he is
not authorised by the board of directors.
UNIT –II
PART-A
1. What is certificate of incorporation?
A certificate of Incorporation is registered firm’s birth certificate
showing its legal name and date of incorporation. It is also called
certificate of registration.
2. What is Incorporation?
Incorporation is the formation of a new corporation ( a corporation
being a legal entity that is effectively recognized as a person under
the law). The corporation may be a business, a non-profit
organization, sports club, or a government of a new city or town.
3. Define: Company Promoter.
A promoter is the one, who undertakes to form a company with
reference to a given object and sets it going and takes the necessary
steps to accomplish that purpose.
4. Define Memorandum of Association?
Memorandum of Association or MOA is the legal document that has
to be filed with the registrar of companies at the time of
incorporation of the company. It is often called as a memorandum
and is comprised of fundamental conditions on the basis of which a
company operates.
5. What is Ultra vires?
Ultra vires Acts, Any act that lies beyond the authority of a
corporation to perform.Ultra vires acts fall outside the powers that
are specifically listed in a corporate charter or state law.
PART-B
1.What are the duties of a promoter?
a.To conceive the idea of floating the company
b.To arrange for advertisement of prospect of the company in the
newspaper
c. To meet all the preliminary expenses for the forming of the
company
d. To disclose fully all the material facts relating to the information of
the company
e. To select the bank, where the account of the company is to be
kept and also the auditors, legal advisers and brokers for the
company
2. State the purpose of Memorandum of Association.
An important step in the formation of a company is to prepare a
document called memorandum of association. It is the charter of the
company and is very important document as it contains the basic
conditions on which the company is incorporated. The memorandum
contains the name, registered office, main and other objects of the
company, liability of the members and the authorised capital of the
company.
The main purpose of the memorandum is to limit the scope of
activities and powers of the company. Thus any act outside the
memorandum is ultra vires the company. Such an act is not
enforceable and directors involve personal liability for it
3. Difference between Memorandum and Articles of Association.
Memorandum of Association Articles of Association
Charter of the company, and
defines and also confines the
fundamental conditions and
objects for which company is
granted incorporation
Bye law or internal regulation
of the company
Subordinate to the Companies
Act
Subordinate to the
Memorandum
Principal document Secondary document
Specifies the scope of authority
and the objectives
Specifies the procedures to be
followed to carry out the
objectives stated in the
memorandum
Defines the relationship
between company and outsiders
Defines the relationship
between the company and its
members and between the
members inter se
Alteration is difficult Alteration is comparatively
easy
PART –C
1. What is meant by Doctrine of Indoor Management? What are its
exceptions?
DOCTRINE OF INDOOR MANAGEMENT
If the directors have powers and authority to bind the company but if
certain preliminaries are required to be gone through on the part of
the company before a power can be duly exercised then the person
contracting with the directors is not found to see that all those
preliminaries have been observed.
Exceptions:
A. Knowledge of irregularity: Under the rule o indoor
management the benefit cannot be claimed if a person dealing
with a company has the knowledge of the irregularity in in its
internal management.
B. No Knowledge
A person having no knowledge of Articles of association cannot
ask for protection under the indoor management.
C. Negligence: If the irregularities are discovered by the person
dealing with a company, on making proper inquiries, he cannot claim
the advantages of the rule of indoor management,
D. Act outsides the scope of apparent authority: If an officer of a
company enterers into a company with a third party and if the act of
the officer is beyond the scope of his authority, the company is not
bound.
2. Discuss the various stages in the formation of a company.
a. Promotion of a company
A business enterprise does not come into existence on its own. It
comes into existence as a result of the efforts of an individual or
group of people or an institution. That is, it has to be promoted by
some person or persons.
b. Registration of a company
It is that brings a company into existence. A company is properly
formed only when it a duly registered under the companies Act.
Procedure of Registration
• Memorandum of Association
• Articles of Association
• List of Directors
• Written consent of the Directors
• Notice of the Address of the Registered Office
• Statutory Declaration
C. Certificate of Incorporation
On the registration of Memorandum of Association, Articles of
Association and other document the Registrar will issue a certificate
known as the Certificate of Incorporation.
d. Certifiicate of commencement of business
As soon as a private company gets the certification of Incorporation ,
it can commence its business. A public company can commence its
business only after getting the certificate of commencement of
business.
UNIT –III
PART-A
1. What is prospectus?
It is an invitation to the public to subscribe to the share capital of the
company. The companies Act 1956 defines prospectus an any
document descried or issued as a prospectus and include any notice,
circular, advertisement or other documents inviting deposits from
the public or inviting offer from the public for the subscription of
shares.
2.What are the objectives of issuing a Prospectus?
� To invite the public to invest in the shares or debentures of a
market
� To give a bureau of a condition on which the public is invited to
invest in shares and debentures
3.What do you mean by statement of lieu of Prospectus?
The statement in lieu of Prospectus is a document filed with the
Registrar of the Companies when the company has not issued
prospectus to the public for inviting them to subscribe for shares.
PART-B
1. What is meant by Red herring prospectus?
� A company proposing to make an offer of Securities may issue
a red herring prospectus prior to the issue of a prospectus.
� A company proposing to issue a red herring prospectus under
sub section (1) shall file it with the Registrar at least three days
prior to the opening of the subscription list and the offer.
� A red herring prospectus shall carry the same obligations as are
applicable to a prospectus and any variation between the red
herring prospectus and a prospectus shall be highlighted as
variations in the prospectus.
2. What do you mean by deemed prospectus?
Sec (64) (1) Provides that where a company allots or agrees to allot
any shares or debentures with a view to these being offered for sale
to the public, any document by which the offer of sale to the public
is made shall for all purposes e deemed to be a prospectus issued
by the company.
A. That the offer of the shares or debentures for sale to the public
was made within six months after the allotment or agreement to
allot
B. That at the date when the offer was made, the whole
consideration to be received by the company in respect of the shares
or debentures had not been received by it.
PART-C
1. What are the rules/conditions regarding issue of Prospectus?
Legal requirement regarding issue of prospectus:
The companies Act have defined some legal requirements about the
issue and registration of a prospectus. The issue of the prospectus
would be deemed to be legal only if the requirements are met.
Issue after the incorporation:
As, a rule, the prospectus of a company can only be issued after its
incorporation. A prospectus issued by, or an behalf of a company, or
in relation to an intended company, shall be dated and that date
shall be taken as the date of publication of the prospectus
Registration of prospectus:
a. A Copy of the prospectus, duly signed by every person who is
named therein as a director or a proposed director of the
company must be filed with Registrar of companies before the
prospectus is issued to the public.
b. The following document must be attached:
*.Consent to the issue of the prospectus required under any
person as an expert confirming his written consent to the issue
thereof, and that he has not withdrawn his consent as aforesaid
appears in the prospectus.
*.The prospectus must have the written consent of all persons who
have been named as auditors, solicitors.
c. Every prospectus must have on the face of it, a statement that
i) A copy of the prospectus has been delivered to the Registrar for
registration.
ii) Specifies that any documents required to be endorsed by his
section have been delivered to the registrar.
d. A copy of the prospectus must be filed with the Registrar of
Companies.
i) The prospectus is dated. The date shall unless the contrary is
proved, be taken as the date of publication of the prospectus.
ii) The contents of prospectus conform to sec 56 of the Act
iii) The consent of the expert with respect to the issue of his
statement included in the prospectus has been obtained.
e.If a prospectus issued in contravention of the above stated
provisions then the company and every person who knows a party
to the issue of the prospectus shall be punishable with a fine.
UNIT-IV.
PART-A
1. What is equity capital?
The Equity capital refers to that portion of the organization capital,
which is raised in exchange for the share of ownership in the
company.These shares are called the equity shares.
2. What is Debenture capital?
A debenture is one of the capital marker instruments which are used
to raise medium or long term funds from public. A debenture is
essentially a debt instrument that acknowledges a loan to the
company and is executed under the common seal of the company.
3. What is reserve capital?
It is that part of capital which is not issued and can be issued only
when company goes under liquidation. To create reserve capital, is
not the necessity of a company.
4. Define Share.
The unit of ownership of accompany is usually referred to as a
shared. It is a single unit that represents equity in the company
capital structure. The owners are called shareholders. The
distribution of shares in a company indicates the distribution of
ownership in the company.
5. What do you mean by paid up capital?
The amount of capital (out of called up capital) against which the
company has received the payments from the shareholders so far.
Paid up capital=Called up capital-Calls in Arrears
6. What is underwriting agreement?
A contract between group f investment bankers who form an
underwriting group or syndicate and the issuing corporation of a new
securities issue.
7.What is forfeiture of shares?
If a share holder, who is called upon to pay any calls fails to pay the
amount even after sending several reminders, the company may
forfeit his shares. Forfeiture of shares results in a permanent
reduction of the share capital
PART-B
1What are the advantages of Equity shares?
A) Equity shares do not create any obligation to pay a fixed rate of
dividend
b) Equity shares can be issued without creating any charge over the
assets of the company
c) It is a permanent source of capital and the company has to repay it
except under the liquidation
d) Equity shareholders are the real owners of the company who have
the voting rights
e) In case of profits, equity shareholders are the real gainers by way
of increased dividends and appreciation in the value of shares.
2. State the guidelines for the issue of fresh capital.
a) A new company defines as one:
Which ha not completed 12 months of commercial operations and its
audited operative results are not available
Which is set up by the entrepreneurs without a track record, such a
company will be permitted to issue capital to public only at par.
b) Where the company is being set up by existing companies with at
5 year track record of consistent not less than 50% of the equity of
such a new company.
c) A draft prospectus containing the disclosures will be vetted by SEBI
to ensure adequacy of disclosures
d) No private placements of the promoters shall be made by
solicitation of share contribution from unrelated investors through
any kind of market intermediaries
3. Write a note on Certified Transfer.
a) When an instrument of transfer has been certified by the
company, it means that the important documents relating to the
transfer of shares have been deposited with the company
b) If the company has wrongly to the certified the instrument and
any person acts on this behalf the company will be liable for any loss
caused to the person acting on the basis of such instrument.
c) An instrument of transfer is deemed to be certified only when it
bears the words Certifies lodged.
PART-C
1. List out different kinds of Share Capital.
Types of Share capital
a) Authorised, registered, maximum or nominal capital
The maximum amount of capital, which a company is authorised to
raise from the public by the issue of shares, is known as authorised
capital. It is a capital with which a company is registered therefore it
is also known as registered capital.
b) Issued capital
Generally a company does not issue its authorised capital to the
public for subscription, but issued a part of it, so issued capital is a
part of authorised capital, which is offered to the public for
subscription including shares offered to the vendor for consideration
other than cash.
c) Subscribed capital
It can not be said that the entire issued capital will be taken up
or subscribed by the public. It may be subscribed in full or in
part.
d) Called up capital
It is that part of subscribed capital, which is called by the company
to pay on shares allotted. It is not necessary for the company to call
for the entire amount on shares subscribed for by shareholders.
e) Paid up capital
It is that part of called up capital, which actually paid by the share
holders. Therefore it is known as real capital of the company.
Whenever a particular amount is called and a shareholder fail to pay
the amount fully or partially it is known as unpaid calls.
f) Reserve Capital
It is that part of uncalled capital which has been received by the
company by passing a special resolution to e called only in the event
of its liquidation
2. Explain the different types of preference shares.
i) Cumulative preference shares
A Preference share is said to be cumulative when the arrears of
dividend are cumulative and such arrears are paid before paying any
dividend to equity shareholders. Suppose a company has 10,000 8%
preference shares of Rs 100 each. The dividends for 1987 and 1988
have not been paid so far. The directors before they can pay the
dividend to equity shareholders for the year 1989, must pay the
preference dividends of Rs.2,40,000 for the year 1987, 1988 and
1989 before making any payment of dividend to equity shareholders
for the year 1989
ii) Non-cumulative preference shares:
In the case of non-cumulative preference shares, the dividend is only
payable out of the profits of each year. If there are no profits in the
year, the arrear of dividend cannot be claimed in the subsequent
year.
iii) Participating preference shares:
Participating preference shares are those shares which are entitled in
addition to preference dividend at a fixed rate, to participate in the
balance of profits with equity shareholders after they get a fixed rate
of dividend on their shares.
iv) Convertible preference shares:
Convertible preference shares are those shares which can be
converted into equity shares within a certain period.
v) Non-convertible preference shares:
These are those shares which do not carry the right of conversion
into equity shares.
vi) Redeemable preference shares:
A company limited by shares, may if so authorised by its articles issue
preference shares which are redeemable as per the provisions laid
down in sec 80.
vii) Guaranteed preference shares:
These shares carry the right of a fixed dividend even if the company
makes no or insufficient profits.
UNIT –V
PART-A
1. Who is a member?
A share holder is a person who buys and holds shares in a
company having a share capital. They become a member once
their name is entered on the register of members. Many
companies limited by guarantee do not have a share capital,
and consequently their members are not shareholders.
2. Define member.
A person whose name is entered in the register of members of
accompany, is the registered member of the company. The
person who signs the memorandum of association with the
company becomes a member.
3. Who can be a member of a company?
All persons who are competent to contract may, in general
become members of company. There are however, some
special considerations to which reference must be made.
4. Can insolvent be a member of a company?
An insolvent may be member of the company, although the
beneficial interest in his shares will be with the official receiver.
He does not cease to be a member of the company on
becoming insolvent unless provided otherwise by the articles of
association.
5. What do you mean by Index of Members?
Every company having more than 50 members shall keep an
index in the form of a card Index of the names of members of
the company. The Index shall at all times be kept at the same
place as the register of members.
PART-B
1. What is the eligibility of membership in a company?
i) Competency to contract
ii) Must have completed 18 years of age
iii) Subscribes to the Memorandum of Association of a company
iv) Membership by qualifying shares
v) Membership by application and registration .
2. What are the liabilities of members in a company?
As a shareholder you are not liable for the company’s obligations
merely by reason of being a shareholder, unless the company
constitution provides that shareholder liability is unlimited. If the
constitution does not provide this, then your liability as a
shareholder is limited to
i) any amount unpaid on a share held by you
ii) any liability expressly provided for the constitution
Obligations to meet calls made by the company in relation to
the liability attaching to shares
former shareholders may be liable to the company for amounts
outstanding in respect of any shares or for any liability provided
for in either the Act or the constitution.
PART-C
1. What are the rights and liabilities of members?
The members of a company enjoy several rights and they are
the ultimate authority in the matters of the company and its
management.
Statutory Rights:
i) Rights to receive notice of meetings, attend, to take part
in the discussion and vote at the meetings
ii) Right to transfer the shares
iii) Right to receive copies of the Annual Accounts of the
company
iv) Right to inspect the documents of the company
v) Right to participate in appointments of directors and
auditors in the Annual general meetings.
Liabilities of members:
i) Any amount unpaid on a share held by you
ii) Any liability expressly provided for the constitution
iii) Any liability for breach of directors duties if the shareholders
are deemed to be directors
iv) Obligations to meet calls made by the company.
2. What are the cases in which membership may be terminated?
Enumerate.
i) When the transfers his shares and the transfer is duly registered in
the books of the company
ii) By forfeiture of shares for non-payment of calls, if articles so
provide
iii) By a valid surrender of shares. It is a short cut to forfeiture as
it involves no legal formalities
iv) When the company sells the shares in exercise of its right or
line over them, by giving a 14 days notice to a debtor
shareholder
v) When a shareholder dies and his shares stand transmitted to
his legal representative, upon registration of the share, in
the successors name
vi) When he is declared insolvent and the official assignee
disclaims the shares under his right of disclaimer of onerous
properly
vii) By repudiating the contract of membership on the ground of
misrepresentation in the prospectus or on the ground of
irregular allotment.