Download - Companies act of 1956
COMPANIES ACT OF 1956
By, Divya Devaiah Deepak.M.S Bhushan patil Ajay.S Goutham pai
CONTENTS
Directors: appointment, power, duties and liabilities
Meeting and resolutions, types of meeting
Auditor: appointment, rights and liabilities
Winding up of company: meaning, modes
Liquidator: powers and duties
Sec 2(13) of companies act of 1956Defines a director as ‘any person
occupying the position of a director, by whatever name called’
In general ,a person is said to be occupying a position of a director, if he has been charged with the responsibility of directing, conducting and controlling the affairs of a company
QUALIFICATION OF DIRECTOR Under the act, only individuals can become directors There is no academic, technical qualifications for a
director Section 270 of act, requires a director to hold
qualification shares in the company, and it should be fixed by the articles of company
The nominal or face value of the qualification shares of director fixed by articles should not exceed rs 5000.
The qualification shares must be acquired by a person elected as a director within 2 months of his appointment
As per section 149 , director appointed by promoters of a newly incorporated firm, director must pay for qualification shares before certificate to commence business is obtained
Contd…..For the purpose of the calculation of the
qualification shares ,only shares included in the share certificate in the name of director are taken into account, share warrants in his name shouldn’t be taken into account
Qualification shares held by director should be disclosed in the prospectus
With in two months of his appointment, he should file with the registrar a declaration specifying the qualification shares held by him
Consequences of failure to acquire qualification shares He ceases to be a director automatically,
soon after the prescribed period(2 MONTHS)Even after expiry of the stipulated period, if
he continues to act as a director, he will be fined for period he was acting as a director.
He can be restrained from acting as a director of company by an order of injunction issued by an competent court
DIFFERENT WAYS OF APPOINTMENT OF DIRECTORSBy the promoters of companyBy the subscribers to memorandum of
associationBy deeming the subscribers to the
memorandum as the first directorsBy the company in general meetingsBy the board of directorsBy third partiesBy the principle of proportional
representationBy the central government
Number of directorshipWhole-time DirectorshipA person cannot be appointed as
a whole-time director in more than one company.
Part-time DirectorshipNot more than 15 companies
excluding the directorships of,
Contd………….private companies [other than
subsidiaries or holding companies of public company(ies)].
i. unlimited companies,ii. associations not carrying on business
for profit or which prohibit payment of a dividend, and
iii. alternate directorships (i.e., he is appointed to act as a director only during the absence or incapacity of some other director).
Duties of DIRECTORS1. Fiduciary dutyExercise powers honestly and bona fide for
the benefit of the company They must not make any secret profit out of
their positions
1. Duties of care, skill and diligence Directors should carry out their duties with
reasonable care and skill,deligence Standard of care: depending upon nature of
work, division of power, customs and remunarations
Other dutiesTo attend board meetingsNot to delegate his functions except to the
extent authorized by the act or constitution of company
To disclose his interest
POWERS OF DIRECTORSGeneral powers of boardPowers to be exercised at board
meetingsPowers to be exercised with the
approval of company in general meetings
Political contributions
Liabilities of directorsLiability to third partyLiability to companyLiability to breach of statutory
dutiesLiability of acts of his co-directorsDe facto and De jure liability
REMOVAL OF DIRECTORSDirectors can be removed by1. Share holders2. Central government3. Company law board
Disqualification of directorsA person with unsound mindAn un discharged insolventPerson who has applied to be adjudicated
as an insolvent and his application is pending before court of law
Person convicted by court for moral turpitude
Person disqualified by order of an court to act as director
A person who failed to pay call money, on his shares for six months from date the call became due
Disqualifications…………… a person who is already a director of a
public company which,—(i) has not filed the annual accounts
and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or
(ii) has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.
MeetingsKey and important matters of the
company are discussed here.
Types of meetings
1)General meetings of shareholders.
a) Statutory meeting: (sec 165) b) Annual general meeting:
(sec. 166 & 167)2)Extra-ordinary general meeting
(sec. 169).3)Meeting of creditors and
debenture holders.
Resolutions
1)Ordinary resolution.2)Special resolution: (sec. 189(2))
AUDITORThe auditor is the servant of the
shareholders entitled with the duty to examine the affairs of the company, on their behalf and report to them what he has found
He is the only safeguard which the shareholders have against enterprise
Qualification
Member of a Institute of Chartered Accountants of India
A firm with all partners being members of ICAI, and any partner may act as auditor in the name of firm
DISQUALIFICATIONS: As per Sub section (3) of Section 226 , none of
the following persons shall be qualified for appointment as Auditor of a Company.
a) Body corporateb) An officer or employee of the companyc) A person who is a partner, or who is in
the employment, of the officer or employees of the company
d) A person who indebted to the company for an amount of more than Rs.1000/-
A person who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding Rs,1000/-
A person holding any security of that company ( After a period of one year from the date of commencement of the Companies (Amendment ) Act, 2000)
For the purpose of security means an instrument which carried voting rights.
According to Sub section (4 ) of Section 226 provides that if a person disqualified as a Auditor for the reasons enumerated in sub section (3) of Section 226 then he cannot be appointed as Auditor of any body corporate which is
1) A subsidiary of that company or2) Holding company of that company or3) A subsidiary of that company’s holding
company
Appointment of First Auditor
According to sub section 5 of Section 224, the board is vested with power to appoint first auditor within one month of incorporation of the company. The date of appointment to be within one month from the date mentioned in Certificate of incorporation issued by Registrar of Companies i.e. existence of the company from date i. e legal entity.
Certificate to be obtained under Section 224 (1B) This provision will not be applicable to Private company on
and after the commencement of Companies (Amendment) Act, 2000 . The public limited companies are supposed to receive the certificate from the Auditor before appointment that if they are appointed as a Auditor of the Companies the appointment will be within limits specified in sub section (1B) of Section 224 of the Companies Act, 1956.
Explanation to Specified number There are two categories
a) A person or firm can audit twenty such companies have paid up capital of less than Rs.25 lakhs
b) In any other case in the specified limit, out of twenty companies not more than 10 shall be companies each of which has a paid up share capital of Rs.25 lakhs or more.
Rights of an auditorRight to access booksRight to obtain information and
explanation from officers, directors etc
Right to visit branch office at all times and access books,reciepts,vouchers etc
Right to receive notice and other statements relating to general meetings
Right to receive remuneration
DutiesAcquaintance with articles of
companies actReport to members in general
meetingExamine trueness of balance
sheet and profit and loss account, if any misuse of funds found by him report same to shareholders
Be honest, perform his duty with care and caution
Special auditThe central government may in certain cases
direct special audit:If it shall have a opinion that ,the affairs of
company is not being managed with sound business principle or prudent business practices
Practices of company likely to cause serious injury or damage to trade, industry
The financial position of company is such as to endanger its insolvency
Special audit can be conducted by appointed c.a by government or by company auditor if government directs him.
Company secretaryAs per sec2(45) a company
secretary is a person who is a member of Institute of Company secretaries of India or any other person possessing the required qualifications, appointed to perform duties imposed on him by the companies act, the ministerial or administrative duties and managerial functions that are delegated to him by the board
qualificationAccording to the
companies(appointment and qualifications of secretary)rules1993, every company with a paid up share capital of rs 50lakh or more shall have a whole time secretary, who is member of ICSI(Institute of Company Secretaries of India)
Other qualificationsSound general educationCommand of languageKnowledge of office administrationKnowledge of procedures of meetingsKnowledge of accountsKnowledge of banking and financeKnowledge of company lawVarious labour lawsTaxation lawsKnowledge of industry and general
managerial ability
DISMISSAL OF SECRETARYExpiry of term of appointment Insanity of secretary InsolvencyPermanent disabilitySerious incompetence Breach of terms of contract on part of secretaryGross negligenceWillful disobedience of lawful ordersMisconductMoral turpitudeDishonesty, fraudulent practicesMaking of secret profits
Rights and powers of auditorRight of access to books.Right to obtain information and
explanation.Right to visit branch offices and
access of branch books.Right to receive notice of general
meetings and to attend them.Right to receive remuneration.
Remuneration of auditorsIt shall be fixed by the directors
in a general meeting.Any sums paid by the company
in respect of the auditor’s expenses shall be deemed to be included in the remuneration.
WINDING UP OF COMPANYThe legal process by which a joint stock
company is brought to an end, that is completely closed down, is called liquidation
In other words, Liquidation is a process by which a business of company is wound up
And in the course of winding up, its assets are realised,liabilities are paid off and the surplus if any, is distributed among the members in accordance with their rights
Modes of winding upCompulsory winding up or
winding up by order of the tribunal
Voluntary winding upWinding up subject to the
supervision of the tribunal
Circumstances leading to Compulsory winding up If the company has passed a special resolution
that it should be wound up by tribunalIf a public company has failed to hold statutory
meeting or file statutory report to registrar of companies
If it has not commenced business within year of its incorporation
If the number of members has fallen below seven in case of public company and below 2 in pvt ltd
If the company is unable to pay debtsIf the tribunal is of the opinion that it is just and
equitable that the company should be wound up
Voluntary winding upWinding up which is brought
about voluntarily without interference of the tribunal of companies through any order, but winded up voluntarily by members of company or by the creditors
Voluntary winding up is of 2 types:Members voluntary winding upCreditors voluntary winding up
Circumstances of voluntary winding upWhen company is solvent, and winding
up decision is brought in by members.When the period for which the company
has been formed has expired and company has passed ordinary resolution
When the event on happening of which the company should wound up has occurred and company has passed ordinary resolution
When a company has passed a resolution that it should wound up voluntarily
Winding up subject to supervisionIf a member or creditor puts an application for
supervision of tribunal, after company has passed special resolution for voluntary winding up, tribunal can entertain the same and pass such order to protect interest of, company, members and creditors.
Tribunal can exercise full control over winding up of company
Can appoint new liquidator in the place of existing liquidator
Can put restrictions on existing liquidatorOr appoint additional liquidator to act on behalf
of tribunal, along with existing liquidator
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