Definition, characteristics and kind of companies (1)

ii. The co act, 2013-37 chapters-Sections 484 in force wef paid up capital as prescribed by articles-Restricts the
01/04/2014 came in existence 29/12/2013. right to transfer shares-Except one person co limit its
iii. What is Company members to 200-Minumum member 2-No
Iv Definition of co: S. 2(20) Co incorporate under CO Act invitation to public to subscribe any security-
2013 or under previous law Restrictions provided in AOA. Minimum paid up
V Nature & Character of company: capital Rs 2 lacs
1. Artificial & legal person: Exist in the eyes of law & can’t 2. Public Ltd S. 2(71): Which is not private CO-
act its own but through BOD elected by shareholders. Min paid up capital Rs 5 lacs-Subsidiary of this CO
BOD only brains of co which is body & co can act through is not Pvt CO but deemed to be Public CO even
them -State trading corporation v Commercial tax officer where such CO continues to be private CO in its
2. Separate legal entity-Unlike partnership firm co is AOA-Security quoted in Stock Exchange-Max
distinct legal entity & independent from who constitute it. members not limited to 200- Security or other
CO is not liable for individual debt or personal benefit of interest shall be freely transferable- Association
share holders. CO is not agent of subscribers or trustee of of !< 7 members-Registered under Act..
them as per law. It has own existence & separate existence 3. One person S 2(62): Based on Irani expert
from members & therefore shareholders arenot liable for committee. Which has only one person as a
act of CO- Saloman v Saloman & co ltd- Lee v Lee’s Air member. S 3(1c) provides for incorporating such
Farming co ltd-Tata Eng v Bihar CO by saying that a CO may be formed for any
3. Perpetual existence: CO life doesn’t depend on lawful purpose by 1 person. It is to say a Pvt CO.
death/insolvency/retirement of any shareholder or Provisions of Pvt CO apply
directors but law only. It need not hold AGM or prepare report on AGM.
4. Separate property: Legal person distinct from its D. On the basis of control: 1. Holding co S. 2(46):
members capable of owning, enjoying disposing property Holding CO in relation to one or more other CO’s
in its own name means a CO of which such CO’s are subsidiary CO.
5. Common Seal: Can’t sign common seal legally binding i.e. Tata sons Ltd is holding CO in relation to CO
on the CO such as Tata Steel, Tata Motors, TCS etc.
6. Company can sue & be sued in its own name: Being body 2. Subsidiary co S. 2(87): It in relation to any other
corporate can sue be sued own name. CO (that is to say the Holding CO) means a CO in
7 Transferable shares: In Public CO shares are freely which the holding CO controls the composition of
transferable u/s 44 as it is movable property transferable BOD or exercise or control more than ½ of the total
in the manner provided in AOA and hence member can share capital either at its own or together with 1 or
dispose of his share by selling them & get back amount. more of its subsidiary companies.. A CO shall be
8. Limited liability: Only unpaid value of share deemed to be subsidiary of holding CO even if
VI Lifting or piercing the corporate veil: This is exception control is of another subsidiary CO of the holding
to Saloman v Saloman & Co ltd. The corporate veil of co CO. According to S 2(27) Control shall include right
may be lifted to ascertain the true character & economic to appoint majority of directors or to control
realities being the legal personality of co. management or policy decisions exercisable by
1. Commission of fraud or improper conduct- This used for persons acting jointly or individually directly or
commission of fraud or improper conduct . Courts have indirectly including by virtue of share holding or
lifted veil & looked at the realities of situation. In Gilford management rights or shareholder or voting
motor co ltd v Horne, & Jones v Lipman (Exception) agreements.
2. Determination of real character of a co- At time of war it 3. Associate: S. 2(6): In relation to other CO means
is necessary to know the real enemy character of CO & CO in which that other CO has significant
persons who is in control. Daimler co ltd v Continental tyre influence but which is not subsidiary CO of CO
3. Where CO are in relationship of holding & subsidiary or having influence & includes a JVC. Significant
sub Subsidiary CO: - LIC v Escorts- UP v Renusagar power- influence means at least 20% of total share capital
Tata eng v Bihar- Benett Collman v UOI (Co not citizen) or business decision under an agreement. Related
4. In certain matters concerning the law of taxes, debts, party include this CO u/s 2(76)
duties and stamps: Commissioner of IT v Sir Dinshaw M E. Association not for profit S. 8: U/s 4(1)
Petit memorandum of CO shall state the name of the CO
Statutory Recognition of lifting of corporate veil with the last word Ltd in the case of public ltd O+CO
VII. Types of company & Pvt Ltd in case of Pvt. However, S 8(1) permit
A. On the basis of incorporation: Charter: By grant of registration under a license granted by CG of
charter by crown and its regulated by Charter associations not for profit with Limited liability
Statutory: Constituted by special Act of parliament or State without being require to use words Ltd or Pvt after
legislature. Act contains powers, constitution & scope of its names. Great value for pursuing charitable
activities. Alteration only by legislative amendment. Don’t educational purpose. CO prohibits payment of any
use word “Limited” like RBI, LICI dividend to its members but intends to apply its
Registered: Incorporated under CO Act,2013. Getting profit or other income in promotion of its objects.
themselves registered with ROC. Register without paying Stamp duty on its
B. On the basis of liability:1. Unlimited liability S.2(92): Not MOA/AOA & enjoys all privilege of limited CO.
having any limit on liability of members. Liable to their CG may revoke licence.
respective interest in CO. It may be public or private CO. This F. Government Company S. 2(45)- CO in which !< 51
CO can get itself re-registered as a limited liability CO U/s 18 of paid up share capital held by CG or SG or Govts
of the Act. 2. Limited by Guarantee: Liability of member or partly by CG and one or more SG & includes
limited undertaken by Memorandum to contribute to the subsidiary CO of such Govt CO. Hindustan steel
assets of CO during winding up. works construction v Kerala
3. Limited by shares: Liability to the extent of unpaid on G Foreign co S. 2(42): CO or Body corporate
the shares. It may be either private or public. incorporated outside India which has place of
C. On the basis of number of members:1. Private Ltd S. business in India whether by itself or through agent
2(68): CO having a minimum physically or thorugh electronic mode & conduct
any business activity in India in any other manner.
Stages of formation of Companies (18) Section 3 to 22 CO(Incorporation) Rule 2014
ii. Stages involved in formation of co. S. 2(20) Company MOA and named 1st Directors about not convicted-
means incorporated under co act or any previous co law. no fraud on formation or management of co any
A. Promotion of co: Preliminary step-idea-determining amt previous co during Previous 5 Y. – Verification of
of capital-kind and nature of business. Who promotes are RO in INC-22-Proof of identity-Consent of director
promoters & it’s in fiduciary position with CO in DIR 12-Power of attorney where promoters
Mode of forming incorporated co S.3: Any 7 or more person appoints attorney
or 2 or more in pvt co associated for any lawful 5. Issue of Certificate of incorporation S. 7(2)-ROC
purposemay form an incorporated co with or without certify that Co is incorporated in INC 11. Details
limited liability. They shall subscribe their money to MOA like Co properly incorporated-MOA-AOA are
and also earning with other formation in respect of within law & Complied with law.
registration. A co so formed may be CO ltd by share or 6. Allotment of CIN S. 7(3): CIN no shall be distinct
limited by Gua or unlimited. identity.
B. Incorporation or Registration stage Effects of registration S. 9: Became body corporate –
Procedure to Get a co registered Subscribers to MOA will be member of co-
1. Preliminary activities: Name-RO-Types Perpetual succession-may sue be sue-power to
2. Application for availability of name: In INC-1 with fees- acquire hold dispose assets.
up to 6 names can be proposed to be reserved for 60 D- C. Capital subscription Stage: By inviting public or
Name should ‘t be identical/resemble to existing CO or pvt placement or offer for sale.
such that will constitute offence/ D. Commencement of business: S. 11 declaration of
undesirable as per CG- Create impression of CO with payment of value of share Rs 5/1 lakh verification
patronage of CG/SG/LB or word may be prescribed with ojyustf RO if fail within 180 days of incorporation
prior approval CG fine Rs 5000 & further delay 1000 per day to officer
3. Preparation of MOA and AOA: or removal of name from ROC
4. Filing doc with ROC S. 7(1):Application INC7 for Part 1 iii. Doc of incorporation to be preserved S. 7(4): Till
co-INC 32 form for other co-MOA-AOA-Declaration in dissolution of the company
INC8 by who engaged in registration process- Affidavit in iv. Punishment for furnishing false or incorrect
INC 9 from each subscriber to information at the time of incorporation S. 7(5,6) as
per mentioned in S. 447. It provides that who guilty
Jail !< 6 M extn to 10Y +fine !< amount involved in
fraud * may be x 3 times
Pre-Incorporation Contracts (28)
Whether pre-incorporation contracts are binding on co?-No -Such contract warranted by terms of
status of co prior to incorporation-Can’t be sue or sued on incorporation & hence specific performance maybe
this-can’t ratify-contracting agent incus personal liability- obtain.
Natal land & Conlonisation v Pauline Colliery syndicate- 2. When Specific performance of pre-incorporation
Kelner v Baxter- contract may be enforced against co S. 19(e):
Position since 1963: T Warranted by terms of incorporation means has
his has gone major change after SRA,1963 been ratify by co. as being part of its documents of
1.When CO obtain specific performance of pre- incorporation & it is within scope of CO’s object as
incorporation contract S.15(h) stated in MOA
MOA(31)
ii. Meaning & DefinitionS.2(56)-Constitution of CO-MOA INC 22 with form MGT 14 within 15 days-No
means MOA of a co originally framed & altered from time MOA change
to time in pursuance of any previous CO law or this Act. - c. Change within the same state from the
Ashbury Railway Carrier & Iron Co ltd v Riche jurisdiction of one RO to that of another-Special
iii. Form of Memorandum of associationS.4(6) Form in Table Resolution-Notice form INC 23 to ROC to Regional
A to E- LS-LGN-LGW-UNS-UWS Director in 30 days-File copy with ROC 60 days
iv. Contents of MOA: Condition prescribed with copy of resolution in MGT 14 –No MOA
a. Name clauseS.4(2) INC-1 (NROLCAN) change
b. Registered office clause S. 12: Within 15 D of its d. Change from one state to another-Special
incorporation CO must have RO.Furnish RO verification Resolution must be confirmed by CG on
in Form INC-22 in 30D Name of State where’s RO It application made in INC 23 with fees-CG must
Determine domicile dispose within 60 D & before passing order satisfy
c. Objects clauseS.4(1)(c):Purpose/ itself about the consent of creditors debenture
Capacity /Ambit & extent of power of CO & negativity holders & sufficient provision made for discharge
Universal Mutual aid v A D Thappa Naidu of debts or adequate security –File with ROC
d. Liability clause: Limited/unlimited-members limited to special Resolution in MGT 14 along with order of
unpaid amt on call-incase of CO limited by Gua the amt CG
up to which member undertakes to contribute to assets in 3. Alteration in object clause S.13(1),13(9)
event of wound up or within 1 year after he ceases to be A) if no prospectus issued-special resolution within
member for payment of debt & liability of CO or such 30 days with ROC should certify
liability as may be contracted before cease to be member- B. if issued and if any unutilised amount out of
Liability to the cost, charges expenses of winding up money raised it is to be applied it shall not change
e. Capital Clause: Reg capital-division thereof into shares of objects for which money raised unless special
fix amt-no of share which subscriber to MOA agree !< 1 resolution passed through postal ballot – exist
share. option to dissenting shareholders as per SEBI- such
f. Association clause or subscription clause S. 13(4) resolution publish in papers.
(c):Declaration of association which is made by signatories 4. Alteration in liability clause-no special provision
of MOA under their sign duly attested by witness that they but special resolution and filing with ROC
desire to form CO & agrees to purchase shares if any. 5. Reorganising in share capital S. 230 to 237
Each must purchase min 1 share. He can’t repudiate his 6. Alteration in Share capital S. 61 & S. 61 ordinary
liability to subscribe even on ground of inducement to sign resolution file notice in SH 7 with ROC within 30
by mis representation. days
v. Alteration of -MOA S. 13 Special resolution after 7. Reducing its capital S. 66
complying with procedure vi. Doctrine of Ultra vires :
1. Alternation in Name S.13(2):Special resolution-approval b. meaning –Beyond power. There for any action
of CG. No application if addition/deletion of word Private. beyond the scope of Moa is ultra vires the co &
2. Alteration in Registered office clause: hence void. Ashbury Railway Carriage & Iron co ltd v
a. Change of RO within the local limit of same town S. Riche – A. Lakshmanaswami Mudaliar v LIC
13(1)(9) -Merely Board resolution Notice to ROC in Form c. Consequences of Ultra vires Transactions. 1.
IND- 22 within 15 days-no MOA change Void ab initio
b. Change from one city to another city in same state- 2. Injunction to restrain co
Special Resolution-Notice of change in form 3. Personal liability of directors- Jehangir R Modi v
Shamji Ladha
4. Ultra vires to acquired property
AOA(41)
ii. Meaning S. 2(5)-Internal working of CO. AOA of a CO Ramamurthy Presumption-Dehradun Mussorie
originally framed or altered from time to time or applied tramway v Jagmandar Das
in pursuance of any previous law or of this Act. viii. Doctrine of Indoor management- opposed to
iii. Form of AOA S. 5(6) (Form in Table F to J – LS-LGW- previous- Protection to outsiders against CO that
LGN-UWS-UNS) CO will not overlook AOA/MOA known to - Royal
iv. Relation between AOA and MOA: AOA is subordinate to British Bank v Turquand
MOA. It lays down rules of its working. Not beyond MOA Statutory recognition of doctrine S. 176 provides
else ultra vires. Ashbury Railway carriage v Riche validity of Acts of directors recognises this doctine
v. Contents of AOA S.5(1):Contain provisions relating to - & states that no act done by as director shall be
Exclusion of wholly or in part of table deemed to be invalid notwithstanding that it was
F-Number/value/allotment of share-Issue of preference after notice that his appointment was invalid by
Share-Winding up-Seal-Adoption of preliminary contract- reason of any defect /disqualification or terminated.
Buy Back Application by Indian courts:Laxshmi Ratan Cotton
Entrenchment S. 5(3):Attitude-Habit-Belief due to which mills v J K Jute mills co ltd
certain amendment difficult or unlikely-AOA may contain Exceptions to Doctrine
such attitude that AOA altered only under certain 1. Where the outsider has the knowledge of the
conditions. This is for protection of minority share irregularity- Howard v Patent Ivory co
holders. 2. No Knowledge of MOA or AOA- Rama Corpo v
vi. Alteration of AOA S. 14-Special resolution-INC 27-No Proved Tin
retrospective effect-Prior permission of NCLT. 3. Forgery-Rauben v Great Fingal
vii. Doctrine of Constructive notice-AOA 4. Negligence-Anand Behari Lal v Dinshaw & Co
public doc on registered-Can be inspected by any on 5. Where question is in regards to existence of agency
payment of fees & hence who enter in contracts with CO - Varkey Souriar v keraleeya Banking
has means to know powers & delegation & limitation to 6. Where the act done is ultra vires to co
directors & hence deemed to have this notice. If enter ix. Exception to Doctrine of Indoor is Ultra vires-
contract beyond power he can’t acquire rights against CO- Dehradun mussorie v Jagmandar Das- Pacific coast v
Protection to co against outsiders- Kotla Venkataswamyy v Arbuthanot
Chinta
Prospectus(51) Section 23-42
ii. Meaning & Definition S 2(70) imprisonment or fine !< 50000 <=3 lakh
iii. Objects: Notice-invite record -declaration ix. Variations in terms of contract or objects in
iv. What constitutes inviting offers from public-Re. South of prospectus S 27: No except approval in General
England -Nash v Lynde meeting by way of special resolution.
v. Provisions with respects to prospectus under co act. Section x. Statement in lieu of prospectus:Public co file with
23-42 ROC if decide not to approach public. File 3 days
iv. Kinds of prospectus: a. Shelf S 31-over certain period before the allotment of shares. Contains information
without issue of further prospectus even after initial offer- similar to prospectus. Sing by directors, Liability of
not issue all time by only classes of co prescribed by SEBI misstatement
not> 1 year. PAS -2 within 1 month-require to file xi. Misstatement in prospectus:
information memorandum if changes What constitutes misstatement? R v. Kylsant -
b. Red Herring S. 32: No particulars of price or quantum Shiromani Sugar Mills v Debi Prasad
of security offered-3 D prior opening subscription Liability of misstatement in prospectus- Every
list/offer-To file with ROC/SEBI before opening subscription person who authorised liable for inclusion or
& issue of prospectus-same obligation Non intimation of omissions of any matter- Criminal- S 34 liable u/s
variations will amount to misstatement. 447 !< 6 M to 10 Y, fine amt =fraud, or 3 times,
c. Deemed S. 25 Co to ABC and ABC to Public (Indirect) Civil S. 35, -Compensation-Civil liability can be
within 6 months it is not de facto prospectus but law avoided U/s 35(2) if consented to became director of
considers it to be prospectus. ABC=“Issue house”. CO the co. He withdrew before issue or issued without
allots or agrees to allot with a view to offer for sale to authority or consent or without knowledge or on
public all or any securities. Such offer for sale is made by knowing he gave public notice.
any document. Punishment for fraudulently inducing person to
d. Abridge S 2(1),33: Memorandum containing features of invest money S. 36,- as per S 447
prospectus. S. 33->No form of application for purchase of Action by affected person S 37: Action may be U/s
any security unless accompanied by a abridge prospectus - 34 or 35 or 36y by any affected person or group of
Exception-Bona fide invitation, not to public, to existing persons
member, uniform offer Other Remedies for misstatement & omission in the
vii. Contents of prospectus Section 26 viii. Penalty for non prospectus-Damage-Rescission of contract: Damage
compliance S 26(9) for deceit or rescission of contract with claim of
For company Rs. 50000 to 3 lakh- Every person knowingly damage u/s 75 of Contract Act.
party to such prospectus, 3 year
Membership in a company(61)
ii. Definition of Member S 2(55)-subscriber to MOA-agree in -Depository Act-if share in demat form name does not
writing-holder of shares-Agreement to became member & appear in register.
entry in register of members vi. Register of members S. 88-Mandarory-
iii. Relationship of member & shareholder vii. Number of members-Public ltd 7-200, Pvt 2-no
iv. Who may become a member-legal capacity to enter in restriction, one person -1-1 maximum
contract-sui juris except co itself viii. Rights of members:
a. CO as a member of another co S. 8-if autho by MOA- U/s a. Individual rights- This is contractual rights& can’t
19 no subsidiary co of holding co can member be taken away except written consent. Copies
b. Partnership as a member: It is not a legal person & hence BS/PL/Audit report/Notice-Inspect Debenture trust
can’t except S 8 company deed/Register & instrument of charges/to be
c. Foreigners as member-Subject to FEMA Heard/Copies & register of contract/Directors-
d. Minor as member. Not competent to contract-but signed by Attend meeting Personally or Proxy-Appoint
lawful guardian for fully paid share-not liable during winding directors-Dividend-Surplus at winding up-Right to file
up-Palaniappa Mudaliar v official liquidator suit & nomination.
e. Insolvent as member.-Yes as long as on register can vote b. Collective rights: To group of members of Co-
but lose beneficial interest in share-dividend to receiver U/s 100 to call EOM by holding !< 1/10th of paid up
f. Co with Charitable object S, 8-Non profit Co, if authorised capital -majority/minority- Application of
by MOA to invest into share mismanagement made by - if having share capital -
v. Modes of becoming a member: By subscribing to MOA, >1/10th of issue capital or !< 100 members- if no
agreeing in writing, holding share recorded as beneficiary in share capital not less than 1/5 of total member apply
register of Depository under Depository Act to NCLT
a. By subscribing to MOA (Deemed agreement): Official ix. Liability of members
liquidator v Suleman bhai kachhi b. By agreeing in writing to a. In unlimited liability co-full
become a member1. by allotment By transfer By Transmission b. In a com limited by gua-bound by as per liability
S. 56 No instrument of transfer necessary. clause of MOA
c. By holding shares of co & whose name is entered as c. In a co limited by shares-unpaid/balance amount.
beneficial owner in records of depository d. Liability in case of incorporation of co by
misrepresentation S 7(7)-Unlimited
x. Cession of
membership-transfer/forfeited/dies/lien/redeem/purcha
se by MEMBER OR CO/winding up etc
Share Capital(70) CO(Share Capital & Debenture) Rules 2014
ii. Meaning and kinds of share capital: Every co limited by placed before co which directly affects the rights
share must have share capital. In Re. SNDP Yogam attached to his preference shares and resolution of
a. Nominal or Authorised S. 2(8) – Authorised By MOA fix winding up of co or repayment or reduction of equity
amount.. or preference Share capital ii. Equity Difference
b. Issued S. 2(50): Part of authorised capital iii. Publication of authorised, subscribed & paid up
c. Subscribed S. 2(86): Subscribed by members Issued = capital S. 60
Subscribed + Unsubscribed iv. Further issue of capital S. 2(62)
d. Called up S. 2(15) e. Paid up S. 2(64): Paid up = Called up v. Alteration of capital S. 61: Notice in Form SH-7
–Calls in arrears. within 30 days with ROC NCLT approval must
f .Reserve Capital – Uncalled capital can’t call during vi. Reduction of capital S. 66 Can’t purchase own
existence of co but only during winding up. Additional security share Unpaid/Cancel NCLT approval vii. Power of
for Creditors co to purchase own shares S. 67,68
g. Preference & Equity S. 43 (1 & 2)
i. Preference: Right to vote only on resolution
Shares(76) CO(Share Capital & Debenture) Rules 2014
Meaning & definition of shares S. 2(84) Shares Capital + register Form SH3-Not > than 15% of existing paid
Stock except where distinction is expressed or implied. In up equity share capital in a year.
Commissioner of IT v Standard Vacuum oil- Bucha F Guzdar Prohibition of issue of share @ discount S. 53: No
V Commissioner of IT- No distinctive numbers as holder of except Sweat equity share u/s 54.
beneficiary interest in records of Depository u/s 45. g. Rights/Further issue of share S.62: Unsubscribed
Nature of Shares S. 44- Vishwanathan v East India Distilleries capital to existing holders in proportion to paid up
Interest measured by sum of money Right to participate in share capital on their share at the time of further
profit. It’s a bundle of rights/liabilities. Movable property issue.
Kinds of Shares: a. Preference S.55,(1) h. Issue of bonus shares S.63: If articles provide -by
payment of dividend/repayment fully paid shares-Recommended by BOD-no
1. Participating & non participating 2. Cum. & non cum.- default in payment of interest/Principal/
Foster v Coles 3. Redeemable and irredeemable(no Co ltd by Statutory due of employee/partly paid up are made
share shall after 2013 issue shares with irredeemable) not > fully paid up.For Convert profit to capital. From
12 Y infra sector 20 Years free reserve/security premium A/c/Capital
b. Equity shares: With voting rights and with differential Redemption reserve
rights as to voting & dividend or otherwise in accordance with i. Employee’s stock option S. 2(37) Further issue to
the rules. employees u/s S 62(1b) special resolution
Issue of Shares: a. Public offer. By a Public Company may Allotment of Shares- In application forms supplied by
invite. IPO/FPO co & by proper authority. Sri Gopal Jalan v Calcutta
B. Private placement S. 42(2): No public- selected group of Stock exchange.
persons throug offer letter in PAS-4<= 200 person Forfeiture of shares: Penalty for violation. AOA
c. Offer for sale: Allots or agrees to allot at a price to authorise-Notice to defaulters-Bonafied & for
financial institution or an “Issue house” for sale to public. benefit of co. Share became property of co. Ceases
d. Issue of preference share S. 55: by passing special to be member-Past member to pay call if
resolution in GM.No subsisting default in the redemption liquidation within 1 year-Can be cancel or reissued
of share or dividend. No redemption period > 20 years & to another person
infra 30 Year Surrender of Shares- Can’t accept as involve
e. Issue of share at premium S. 52 > par value. Premium reduction in capital-Re Catiglione’s Willtrusts
decided by BOD. Premium transfer to separate “Share Hunter v Mackenzie
premium A/c.Utilization as defined in S.52. It’s not profit Transmission of SharesS.56,(2):Death/Insolvent
f. Issue of Sweat Equity S. 54: U/s S 2(88) Issued to /operation of law/liquidation within1month
directors & employees @discount or for consideration Share certificate and Share warrant:
other than cash. Conditions: Share must of class already a. Share certificate – Entry in register S 46(1) b.
issued - 1 year since commenced business -Authorised by Share warrant: It’s Negotiable by public ltd.
special resolution-Lock in period 3 Y-Maintain Against fully paid up.Prior approval of CG must &
authorised by AOA. Holder can take share
certificate only if he surrenders share W
a. Meaning of Dividend S. 2(35) Interim/final
/pref share Punishment- S.127 all directors pay in
30 D Jail 2 Y/1000 PD 18% No offence law
Debentures(92) Rule 18 of Companies (Share capital & Deb.) rules 2014
ii. Debentures S. 71: Provisions to issue. 2. Bearer: It’s NI like share warrants.
iii. Meaning and Definition S, 2(30):Includes debenture vi. Debenture stock: 1 aggregate loan fund or
stock/bonds or any other instrument evidencing a debt composite stock. It is borrowed capital consolidated
consisting chare on company’s assets or not into one mass for ease. Secured by trust deed. It is
iv. Characteristics of Debentures: Ack of debt-under seal of fully paid up.
co-in series-charge on undertaking of co or assets-holder is vii. Issue of debentures: Power with Directors. Can’t
creditor-no voting rights at meeting of co borrow > than authorised. Power can’t be
v. Kinds of Debentures: delegated by BOD.
a. On the basis of convertibility a. issue of convertible S. 71(1): With option into
Non or partially or fully convertible. Approval of special share wholly or partially at the time of redemption.
resolution must at GM Has to be approved by special resolution at GM.
b. On the basis of security b. No debenture shall carry voting rights S. 71(2): No
1. Secured. S, 71(3) issued as per terms of CG. 2. Unsecured: CO can issue carrying voting rights
No right to proceeds against property of CO. Only promise c. issue of secured S. 71(3): 10Y infra 30Y appoint
to pay debenture trustee. Execute trust deed not later than
c. on the basis of Redeemability 60D after allotment.
1. Redeemable: @ fix date/on demand d. Creation of deb. redemption reserve account S.
/after notice/Can reissued or cancelled 2. Irredeemable: No 71(4): Separate Accout-DRRA out of profit of co
fix time/Can’t demand payment when co going concern & for dividend. No utilization except redemption.
no default D. On the basis of Registration e. Appointment of Debenture trustee S. 71(5)
1. Registered S,56:On Name/Transferable f. Register of Debenture holders S.88(1)MGT-2
g. Payment of interest on and redemption of
debentures. 3 Y fine 2 lakh extn 5 lakh
Charge(98)
Definition S., 2(16) Type of charges a. Fix b. floating. Smith v Bridgend County.
Promoter (24)
ii. Who is a promoter/definition of promoter?-Preliminary Idea
of doing business-Amt of capital-nature of business-
TWYEROSS V GRANT-
iii. Characteristics of a promoter: S. 2(69) promoter means
a person who named in prospectus or identified in annual
return-may be individual/firm/association/CO-originate
idea of formation of co-membership not necessary in
proposed co.
iv. Importance of promoter: Backbone of CO
v. Legal position of promoter: Agent/trustee/
representative/No contract between CO & him but
fiduciary relation Libney v Wingpool iron ore.
vi. Rights of promoter
1. Right to receive the legitimate preliminary expenses
2. Right of identity
vii. Duties of promoter. 1. To disclose secret profit 2.
To disclose all the material facts.3. The promoter must
make a good to the co what he has obtained as a
trustee 4. Duty to disclose private arrangements
5. Duty of promoter against the future allottees.
viii. Liabilities of promoters.1. Personal liability 2.
Liability to account in profit 3. Liability for
misstatement in prospectus 4. Liability at the time of
winding up