COMPANY LAW

Incorporation of a Company
Incorporation of a company refers to the setting up of a company according to
the provisions laid out in the Companies Act of 2013.

Advantages of Incorporation of a Company

Separate Legal Identity - Corporate Personality

An incorporated company, unlike a partnership firm which has no identity of
its own, has a separate legal identity of its own which is independent of its
shareholders and its members. The companies can thus own properties in
their name, become signatories to contracts etc.

Corporate Personality is dealt in detail in Jurisprudence.

Perpetual Successio
Perpetual succession means that the existence of the company does not
depend on its members or their financial status. Even if all the members of
the company go bankrupt or all of them die, the company will not dissolve on
its own unless it is made to dissolve on grounds which are laid out in the act.

Transferable Shares
The shares of a company are deemed to be movable and transferrable in the
manner provided by the articles of the company. This enables the member to
sell his shares in the open market and to get back his investment without
having to withdraw money from the company. In a partnership, a partner
cannot transfer his share in the capital of the firm except with the unanimous
consent of all the partners.

Capacity to Sue
Power of suing individuals and other companies in the name of the company.

Limited Liability
The liability of the members is limited to his or her share in the company and
the liability ends there. No one is bound to pay more than what he has put in.
Chapter II (Section 3-22) of Companies Act, 2013 deals with
incorporation of a company.

A company comes into existence is generally by a process referred to as

incorporation. Once a company has been legally incorporated, it becomes a
distinct entity from those who invest their capital and labour to run the
company. Usually, the first step to form a company is the process known as
'promotion where a person persuades others to contribute capital to a
proposed company before it is incorporated. Such a person is called the
promoter of the company. Promoters also can enter into a contract on behalf
of a company before or after it has been, granted a certificate of
incorporation, and arrange share issues in the name of the company.

Promoter is defined in Section 2(69) of the Companies Act, 2013.

Section 3 states that, "A company may be formed for any lawful purpose by-

(a) 7 or more persons public company

(b) 2 or more persons private company; or

(c) 1 person-One Person Company

Registration of Company

The registration of a company is obtained by filing an application with the

Registrar of Companies.

The application shall be accompanied by the following documents:

1. Memorandum of association

2. Articles of association

3. A statement of nominal capital

4. A notice of address of the registered office of the company.

5. A list of directors and their consent to an act signed by them

6. A declaration that all the requirements of the act have been complied with.
Such declaration shall be signed by an advocate of high court or supreme
court or a chartered accountant who is engaged in the formation of
company
 Memorandum of Association

The memorandum of association of a company can be referred to as its

constitution or rulebook. The memorandum states the field in which the
company will do business, objectives of the company, as well as the type of
business the company plans to undertake. It is further divided into five
clauses

1. Name Clause

2. Registered Office Clause 3. Objects Clause

4. Liability Clause

5. Capital Clause

Name Clause
Should not be too close to name of other company. The name should not
mislead as to the nature of the business carried on by the company. If the
company is with "limited liability", the last word of the name should be "limited"
and in the case of a private company "private limited". This informs the
person contracting with the company what the liability of the members of the
company is.

Registered Office Clause

The second clause of the memorandum states the State in which the
registered office of the company shall be situated. After incorporation, the
exact address of the registered office should be sent to the Registrar.

Objects Clause
The third clause of the memorandum states the objects of the proposed
company. It is divided into two sub clauses;

1st subclause- main objects.

2nd subclause other objects (objects incidental or ancillary to the main objects)

Liability Clause
The clause will state whether the liability of the members shall be limited, and,
if so, whether limited by shares or by guarantee, or unlimited.

Capital Clause

States the amount of capital with which the company is proposed to be

registered and the kinds, number and value of shares into which the capital is
to be divided.
 Articles of Association

Articles of Association is the second important document, which in the case of

some companies, has to be registered with the memorandum. Articles are
internal regulations and bye-laws needed to define how the company will
actually operate.

Upon the satisfaction of the Registrar, he registers the company, enters its
name in the Register of Companies and issues a certificate called the
Certificate of Incorporation.

Certificate of Incorporation

The significance of the Certificate of Incorporation lies in the fact that this
certificate brings the company into existence as a legal person. The certificate
is proof that all the requirements of the Act with respect to the aforementioned
matters have been complied with and that the association is a company
authorised to be registered under this act.

Doctrine of Indoor Management

The doctrine of indoor management, also known as Turquand rule is a 150-
year-old concept, which protects the outsiders against the actions done by the
company. The doctrine originated from the landmark case Royal British
Bank V Turquand (1856)

Any person who enters into a contract with the company shall ensure that the
transaction is authorised by the articles and memorandum of the company.
There is no requirement look into the internal irregularities, and even if there
are any irregularities, the company shall be held liable since the person has
acted on the grounds of good faith. So, the company is liable for acts of
directors also, acts which are against the articles and memorandum.

Doctrine of Ultra Vires

The doctrine of ultra-vires first time originated in the classic case of Ashbury
Railway Carriage and Iron Co. Ltd. v. Riche, (1878). This doctrine says that
a company is authorized to do only that much which is within the scope of the
powers provided to it by the memorandum of association. A company can
also do anything which is incidental to the main objects provided by the
memorandum. Anything which is beyond the objects authorized by the
memorandum is an ultra-vires act.
 Prospectus
Prospectus is a document issued by public company to invite general public
to invest in the company. Prospectus refers to an information booklet or offer
document on the basis of which an investor invests in the securities of an
issuer company.

Section 2(70) of the Companies Act, 2013 defines a prospectus:

‘prospectus' means any document described or issued as a prospectus and

includes a red herring prospectus referred to in section 32 or shelf prospectus
referred to in section 31 or any notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of
any securities of body corporate.

According to the Companies Act 2013, there are four types of the prospectus:

1. Abridged prospectus

2. Deemed prospectus

3. Red herring prospectus.

4. Shelf prospectus.

Abridged Prospectus - Abridged prospectus is a memorandum, containing

all salient features of the prospectus as specified by SEBI. This type of
prospectus includes all the information in brief, which gives a summary to the
investor to make further decisions. A company cannot issue an application
form for the purchase of securities unless an abridged prospectus
accompanies such a form.

Deemed Prospectus - Deemed prospectus has mentioned under Companies

Act, 2013 Section 25 (1). When a company allows or agrees to allot any
securities of the company, the document is considered as a deemed
prospectus via which the offer is made to investors. Any document which
offers the sale of securities to the public is deemed to be a prospectus by
implication of law.

Red Herring Prospectus - It is a prospectus which does not have details of

either price or number of shares being offered, or the amount of issue. This
means that in case price is not disclosed, the number of shares and the upper
and lower price bands are disclosed.

Shelf prospectus - Shelf prospectus is stated under section 31 financial

institution offers one or more securities to the public. A company shall provide
a validity period of the prospectus, which should not be more than one year.
The validity period starts with the commencement of the first offer. There is no
need for a prospectus on further offers. The organization must provide an
information memorandum when filing the shelf prospectus.

Golden rule of Prospectus

The 'Golden Rule' for framing of a prospectus was laid down by Justice
Kindersley in New Brunswick & Canada Rly. & Land Co. v.
Muggeridge (1860). Basically, this golden rule says that whatever
information comes from the company to the public, through the medium of
prospectus, must be true fair and accurate because when a company issues
a prospectus to attract the general public to purchase its shares, People rely
on that information to invest in the shares of the issuing company so the
prospectus should be true in a strict sense.

Contents of prospectus

1. Registered company office address.

2. Company secretary, auditors, bankers, underwriters, etc., their respective

names and address.

3. Opening and closing dates of the issue.

4. Allotment letters and refunds declaration within the prescribed time.

5. A statement by the board of directors about the separate bank account

where all monies received out of shares issued are to be transferred.

6. Underwriting of the issue their details.

7. Directors, auditors, bankers Consent to the issue, expert's opinion if any.

8. The authority for the issue and the details of the resolution passed thereof

9. Procedure and time schedule for allotment and issue of securities

10. The Capital structure of the company with a comprehensive outlook.

11. Main objects and location of the present business of the company.

12. Public offer and terms of the present issue and its objective.

13. Minimum subscription, amount payable by way of premium, issue of

shares otherwise than on cash.

14. Appointment and remuneration details the director 15. Sources of

promoter's contribution.
Shares and Debentures
Chapter IV-Share Capital and Debentures (Sections 43-72) of
Companies Act deals with Share Capital and Debentures

Every company limited by shares must have a share capital. Share capital of
a company refers to the amount invested in the company for it to carry out its
operations.

A share is the interest of a member in a company.

A debenture is a debt tool used by a company that supports long term loans.
Here, the fund is a borrowed capital, which makes the holder of debenture a
creditor of the business

Section 44 - Share, debentures or other interest of any member in a

company shall be movable property. It shall be transferable in any manner
provided for in the articles of association of the company.

Shares

According to Section 2(84) of the Companies Act 2013, Share means Share
in the share capital of a company and includes stock.

The shares of the company are issued to the public, and whoever buys
shares gets an opportunity to be part of the company.

Kinds of Shares (Section 43)

1) Equity shares or ordinary shares and

2) Preference shares

Equity Shares or ordinary shares

All share capital which is not preference share capital is Equity Shares. The
rate of dividend is not fixed. The profits Board of Directors recommends the
rate of dividends which is then declared by the members at the Annual
General Meeting.
A dividend is a
distribution of by a
corporation to its
shareholders

Equity share capital may be divided on the basis of voting rights and
differential rights (DVR) as to dividend, voting rights or otherwise according to
the rules. A DVR share is like an ordinary equity share, but it provides fewer
voting rights to the shareholder.
Preference Shares

In "Preference shares" a fixed rate of dividend or premium is payable

compared to equity shareholders as specified in the memorandum of
association or articles of association.

A preference share has a preferential right in respect of dividends at a fixed

amount or a fixed rate, and a preferential right regarding the repayment of
capital on winding up.

Types of Preference Shares Description

Convertible These shares can be readily converted

into equity shares.

Non-convertible Though these types of preference share

cannot be converted into common stock,
they are still prioritised over them.

Redeemable Typically, these shares come with a

maturity date, on maturity date the
company repurchases its shares from the
investors at a fixed rate and ceases their
dividend.

Non-redeemable These shares cannot be redeemed in the

lifetime of the company. Notably, they
come with a fixed rate of dividend.
Participating
Besides extending dividends,
participating preference shareholders are
also entitled to surplus profits of the
company.

Non-participating These shares do not entitle shareholders

to any surplus profit but offer them the
promised dividends.

Cumulative In the event of loss, a company is liable

to pay the shareholders' outstanding
dividends

Non-cumulative The non-cumulative shareholders are not

entitled to receive dividends in arrears

Adjustable In case of this share, the rate of dividend

is not fixed and gets influenced by
prevailing rates.

Transfer & Transmission of Shares

Transfer of shares is a voluntary act. It is the phenomenon of transferring the
ownership of one shareholder to another person. It is dealt in Section 56 of
the Act and applicable rules m thereunder.

Debentures
Companies have to frequently borrow large sums of money. This loan may
have to be split into several units. A debenture is a great financial tool that
shows the debt of a business to the outside party/public and gives a fixed
interest rate.

The provisions of the 2013 Act about debentures are in Section 71.

Types of Debentures
Based on Performance

Redeemable Debentures

where the date of redemption of the debentures are specifically mentioned in

the debenture certificate issued.

Irredeemable Debentures

continue for perpetuity and unlike redeemable debentures, there is no fixed

date on which the company needs to pay the debenture holders. It becomes
redeemable only when the company goes into liquidation.

Based on security

Secured Debentures

When the debentures are issued by way of creation of charge over the assets
of the company, then such debentures are called as secured debentures.

Unsecured Debentures

issued by the company without creation of charge over the assets of the
company. In other words, these debentures do not offer any protection to the
debenture holder in case the company is unable to pay the principal amount
on the due date.

Based on Convertibility
Fully Convertible Debentures
Fully convertible debenture holders have the right to convert their debentures
into equity shares of the company at a future date, at the option of the
debenture holders.

Non-Convertible Debentures

Debentures which do not have an option to get converted into equity shares
of the company. These debentures get redeemed at the end of the maturity
period.

Based on Record

Registered Debenture

In case of registered debenture, the name, address, number of debentures

and other details pertaining to holding are entered by the company in the
register of debentures. In such cases, the transfer of debentures from one
debenture holder to another debenture holder is recorded in the register of
debenture holders as well as register of transfer.

Unregistered Debentures

Unregistered debentures are also called bearer debentures. Unlike registered

debentures, the company does not maintain the records of such debentures
and the principal amount and the interest is paid to the bearer of the
instrument as against the name written over such instrument. These
debentures are easily transferrable in the market.

From Coupon Rate Point of view

Specific Coupon Rate Debentures

Such debentures are circulated with a mentioned rate of interest, and it is

known as the coupon rate.

Zero-Coupon Rate Debentures

These debentures don't normally carry a particular rate of interest. In order to

restore the investors, such type of debentures is circulated at a considerable
discount and the difference between the nominal value and the circulated
price is treated as the amount of interest associated to the duration of the
debentures.

Register of debenture-holders [S.88]

A company issuing debentures has to maintain a register of debenture-

holders in the prescribed form and manner:

1. the name, address and occupation of each debenture-holder;

2. the debentures held by each holder, showing numbers and the amount
actually paid or deemed to be paid;

3. the date at which each person was entered as a debenture holder; and

4. the date at which any person ceased to be a debenture holder.

Shareholder compared with debenture-holder

Shares Debentures

What it means? Shares are the Debentures are the

company-owned capital. borrowed capital of the
company.
Holder The person who holds The person who holds
the ownership of the the ownership of the
shares is called as Debentures is called as
Shareholders. Debenture holders.

Status Owners. Creditors

Mode or return Shareholders are given Whereas, debenture
the dividends. holders are given
interest.
Dividends can be paid to Interest can be paid to
Payment of return the shareholders out of the debenture holders,
profits earned by the regardless of if the
company. company has earned
profits.

Shareholders possess Debenture holders do

Voting rights voting rights. not possess any right
for voting.

Conversion Shares cannot be However, debentures

converted into can easily be converted
Debentures. into Shares.

Trust Deed Trust deed is not carried When the debentures

out in the shares. are circulated to the
public, a trust deed has
to be carried out.

Directors
A corporation must act through living persons. This makes it necessary that
the company's business should be entrusted to some human agents. A
director means a director appointed to the Board of a company. [S.
2(34)]. A director is not a servant of the company, but a controller of the
affairs of a company.

Section 149: Company to have a board of Directors

• Minimum number of directors

- public company shall have at least three directors

- private company shall have at least two directors
- one-person company, there has to be at least one director.

•There can be a maximum of 15 directors. Companies have been permitted to

have more than 15 directors by passing a special resolution.

• The Government may prescribe a class or classes of companies which will

have to appoint at least one-woman director.

• There has to be at least one such director who has stayed in India not less
than 182 days in the previous calendar year.

• A public company having a paid-up share capital of rupees five crore or

more and one thousand or more small shareholders, should have a director
elected by the small shareholders. A small shareholder for this purpose
means having shares of the nominal value of twenty thousand rupees or
less in a public company.

• In the case of a listed company, at least one-third of the directors have to be

independent directors.

Sub-section (6) of section 149, defines that an independent director stands for
a director other than a managing director, whole-time director or a nominee
director:

1. Who is a person with integrity and has relevant expertise and experience.

2. Who has not been a promoter of the company, its subsidiary or holding
company either in past or present.

3. Who himself or his relative has no pecuniary relationship with the company,
its holding or subsidiary company, directors or promoters.

4. Who himself or his relative, do not hold the position in key managerial
personnel, or not an employee of the company.

An independent director holds office for a term of five years, he can be

reappointed by a special resolution but he cannot hold office for more than
two consecutive terms.

Qualification of Director
 - Must be a natural person, A company or enterprise cannot be
appointed as a director. At least one director of Company should be
Resident of India.
- Should not be subject to any disqualifications under Section 164
which are as follows

o he is of unsound mind and stands so declared by a competent court;

o he is an undischarged insolvent;

o he has applied to be adjudicated as an insolvent and his application is

pending:

o he has been convicted by a court of any offence, whether involving moral

turpitude or otherwise, and sentenced in respect thereof to imprisonment for
not less than six months in the last 6 months (A person who has been
convicted of imprisonment for more than 7 years shall not be eligible to be a
director in any company)

o an order disqualifying him for appointment as a director has been passed by

a court or Tribunal and the order is in force;

o he has not paid any calls in respect of any shares of the company held by
him, whether alone or jointly with others, and six months have elapsed from
the last day fixed for the payment of the call;

o he has been convicted of the offence dealing with related party transactions
under section 188 at any time during the last preceding five years; or

o he has not complied with sub-section (3) of section 152.

o No person who is or has been a director of a company which

A. has not filed financial statements or annual returns for any continuous
period of three financial years; or
B. has failed to repay the deposits accepted by it or pay interest thereon
or to redeem any debentures on the due date or pay interest due
thereon or pay any dividend declared and such failure to pay or
redeem continues for one year or more

shall be eligible to be re-appointed as a director of that company or appointed

in other company for a period of five years

A private company may by its articles provide for any disqualifications for
appointment as a director in addition to those specified above.

Appointment of directors (Section 152)

- The subscribers to the memorandum who are individuals and in case of a
One Person Company an individual being member shall be deemed to be the
first director/directors of the company until the directors are duly appointed

- General provisions relating to appointment of directors

o Except as provided in the Act, every director shall be appointed by the

company in general meeting.

o Director Identification Number (DIN) (Section 154) is compulsory for

appointment of director of a company.

o Director has to give his consent and this consent is registered with the
Registrar within thirty days of his appointment

o Under section 242 of the Companies Act 2013, the Company Law Tribunal
also has the power to appoint directors.

- For Public Company or a Pvt. Company which is subsidiary of a public

company

o 2/3rd of total directors is appointed by the shareholders

o Remaining 1/3rd is appointed as per Articles of the company.

- For a Private company which is not a subsidiary of a public company the

articles prescribe the manner of appointment of all directors, if the articles are
silent then Shareholders shall appoint.

Nominee Directors are appointed by government or third party.

Powers of Directors
- Power to make calls in respect of money unpaid on shares

- Call meetings on suo moto basis.

- Issue shares, debentures, or any other instruments in respect of the

Company.

- Borrow and invest funds for the Company

- Approve Financial Statements and Board Report

- Approve bonus to employees

- Declare dividend in the Company

- Power to grant loans or give guarantee in respect of loans

- Authorize buy back of securities

- Approve Amalgamation/Merger/ Takeover

- Diversify the business of the Company

Duties of directors (Section 166)

- To act in good faith

-Act in accordance with the Articles of Association of the Company

- To act so as to promote the objects of the Company

- Act in best interest of the Company and its stakeholders

- Exercise duties with due and reasonable care

- To exercise independent judgement

- Not to get involved in a situation where his interest conflicts with the interest
of the Company

- He cannot assign his office to any other person.

- Not to achieve undue gain or advantage

Removal of directors
A director is removed when:

He himself gives his resignation

- The company will hold a Board Meeting by giving seven days of clear notice
(Clear notice means 21 days' notice. excluding the day on which the notice
was sent and received.

- When the Board meets, they will discuss amongst and decide whether to
accept the resignation or not.

- Once the Board accepts the resignation of the director, they will pass a
Board resolution accepting the resignation.

- After formalities of companies’ act are fulfilled the name of the director is
officially removed.

He is removed Suo-moto by the Board

- A Board Meeting will be called by giving seven days' notice to all the
directors. A special notice will go to the directors informing them about the
removal of the director.

- On the day of the Board Meeting, a resolution for the holding of an

extraordinary general meeting will be passed along with the resolution for the
removal of the director subject to the approval of the shareholders.

- A general meeting will be held by giving 21 days clear notice. In the

meeting, the members will be asked to vote on the matter. If the majority is in
favour of the decision, the resolution will be passed.

- Before the passing of the resolution, an opportunity of being heard will be

given to the director.

- After the passing of the resolution and completing all other formalities the
name of the director will be struck off

He does not attend three Board Meetings in a row

As per section 167 of the Companies Act, 2013 if a Director does not attend a
Board Meeting for 12 months, starting from the day on which he was absent
at the first board meeting even after giving due notice for all the meetings, it
will be deemed that he has vacated the office

Meetings
A company is considered as a legal entity separate from its members in the
eyes of law. All the affairs of the company are practically carried out by the
board of directors. The board of directors of a company carries out these
affairs within the limitations of their powers, as invoked by the articles of
association of the company. The directors also exercise certain powers of
their own with the consent of other members of the company.

The consent of the other members is ensured at the general meetings held by
the company. Any mistakes committed by the board are rectified by the
shareholders (who are also considered as owners of the company) at the
meetings of the company.

The shareholders' meetings are conducted for the shareholders to give their
verdict on the decisions and steps taken by the board of directors.

There are two types of meetings held by a company: Board Meeting &
General Meeting. General Meetings are further divided into AGM's & EGM's.
 Board meetings

Section 173 of Companies' act 2013 provide for meeting of board of directors
where they exercise their powers and functions. This is to ensure that board
of directors supervise the company efficiently.

First board meeting - The first meeting should be held within 30 days of the
incorporation of the company. The board of directors use their expertise and
knowledge and discuss strategies to run the company.

Time and due date - In a year not less than 4 meetings are to be held and not
more than 4 months should pass between two meetings.

Presence of directors-The directors are not required to physically present in

every meeting, they can be present through other video or audio means. But
there may be certain matters which cannot be discussed through video
conferencing or audio-visual means and in such cases central government
may prohibit the use of the same. Also, a director can only remain absent if
granted permission by the chairman.

Notice- Every director has to be pre notified about the meeting at his
registered address and notice should be given in not less than 7 days.
Moreover, the decisions of the meetings are to be notified to directors who
were absent from it. If the person responsible for notifying defaults from his
duty, he is liable to be penalised. Compliance with the law is ascertained
when directors are notified.

Quorum- A definite number of members or directors have to be present in the

meeting according to section 174. The board meeting is to comprise of 1/3 of
total members or two directors (whatever is higher).

Annual general meeting (AGM)

According to section 96 of the companies Act 2013, every company public

and private company is required to hold one general meeting in a year
supervised by its directors to evaluate the progress of the company and plan
future course of action which is known as annual general meeting.

Notification- The meeting has to be pre notified which has to be generally not
less than 21 clear days before the scheduled day. In some cases, the
meeting can be called on a short notice.

Due date of the meeting - The meetings are stipulated to be held within nine
months from closing of first financial year of the company and six months
from the closing in subsequent years. Time elapse between two meetings
cannot be more than 15 months. The section also provides that it is on the
discretion of the registrar to extend the time of AGM (not more than 3
months).
Tribunal calling the meeting - In case of failure to hold meeting in required
time under section 96, the Act provides power to the Tribunal (which is a
quasi-judicial body made to adjudicate disputes arising out of company law)
on submission by any member might call or provide directions for calling the
meeting.

Punishment for default - section 99 of the companies Act 2013 provides that
whosoever is liable for defaulting would be penalised with a fine extending up
to one lakh depending on the circumstances.

Extraordinary general meeting (EGM)

Section 100 of companies Act lays down the guidelines for the board to call a
general meeting extraordinary in nature to deliberate upon some matter
requiring immediate attention.

Calling the meeting, the board of directors has been vested with powers to
call extraordinary general meeting (they cannot call AGM). The Extraordinary
General Meeting can be held by both the company's directors and the owners
who own at least one-tenth of the company's paid-up share capital.

Time-The meeting is called between two AGMs to discuss matter requiring

serious attention.

Nature of business-The matters discussed in the meeting are special in

nature other than mere discussion on dividends, auditors etc. The matter of
urgent importance for instance can be unforeseen costs incurred or change in
association of the company. The matters are the ones which are not
discussed in statutory or general meetings.

Other meetings

There are certain other kinds of meetings that take place in a company. There
are no well-defined sections for such meetings but have been part of
company law through various judicial cases and interpretation.

Creditor's meetings

Under section 230 of the Act, companies can make arrangements with
creditors. Such arrangements are often discussed in meeting between the
directors, board and creditors. It is known as meeting of creditors. In some
cases, the judiciary may also play an important role in calling meeting of the
creditors.

Meeting of debenture holders

Companies are entitled to issues debentures and to implement the same it
calls meeting of debenture holders. It is between the board of directors and
debenture holders to discuss the rights and responsibilities related to
debentures.

Audit committee meetings

Section 177 of companies Act provides that companies can have audit
committee comprising of directors of companies similar to the main company.
These auditors have their own meeting to deliberate upon various issues in
meeting to deliberate upon various issues in meetings of audit committee.

Procedure of meetings
meetings of audit committee.

All the meetings held in companies have to follow certain well-defined rules
and procedure for their proper functioning. There may be certain variations
but general procedure is same. There are some steps that have to be
mandatorily followed:

Issuance of notification-The board of directors and all the concerned

members have to be informed beforehand about the meeting to ensure their
presence. It can be a long term or short notice depending on the situation.

Contents of notice- The notice has to specify place, date, time, description
about the matter of importance to be discussed and some brief about
business. It has to be duly signed by the convener with the date of issuance.

Quorum- The person responsible for notifying the meeting has to ensure that
the meeting has been pre notified to appropriate quorum which has to be
present in the meeting as specified in the Act. The quorum has to be
maintained throughout the meeting.

Chairman- Every meeting has to be compulsorily presided by a chairperson.

Generally, the chairman of the Board of Directors is the Chairman of the
meeting. He is responsible to initiate the discussion of motions in the meeting
and conclude the same. It's his responsibility to ensure smooth functioning of
the meeting. The chairman can also be selected by voting through hands.

Resolutions-These are the decisions taken in every meeting. When these are
put to consideration and voting there are certain procedures and rules to be
followed. These are provided in various sections.

Voting-There might be matters on which there is no general consensus and

voting has to be done. After detailed discussion, the chairperson may call the
matters (if undecided) for voting. There have been specified requirements for
voting in different meetings in the companies Act, 2013. The process of voting
is supervised by the chairman.
Adjournment and Minutes - After careful consideration and discussion, the
meeting is concluded which is called as adjournment and subsequently
dissolution where members disperse. These deliberations have to be
documented in an official document of the company providing gist of every
meeting which are called minutes of meeting. Every important detail of the
meeting has to be included as said in companies' act 2013.

Report-companies are required to prepare report of the meeting. The copy of

the same has to be filed with the registrar.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

According to the United Nations Industrial Development Organisation,
Corporate Social Responsibility (CSR) is a management concept whereby
companies integrate social and environmental concerns in their business
operations and interactions with their stakeholders.

CSR is generally understood as being the way through which a company

achieves a balance of economic, environmental and social imperatives
(Triple - Bottom Line - Approach), while at the same time addressing the
expectations of shareholders and stakeholders.

The triple bottom line is an accounting framework with three parts: social,
environmental and financial. Some organizations have adopted the TBL
framework to evaluate their performance in a broader perspective to create
greater business value.

SECTION 135 of The Companies Act, 2013 has made it mandatory for
companies fulfilling certain criteria, to implement and report CSR Policies.

Rules framed thereunder and Notifications issued from time to time has
provided extensive guidelines on the activities to be undertaken by the
companies and the reporting of the same in the Annual Report of the
Company.

According to SECTION 135(1), every company with

• a net worth of Rs 500 crore or more,

• a turnover of Rs 1,000 crore or more, or

• net profit of Rs 5 crore or more,

are required to spend 2 per cent of their average profits of the previous three
years on CSR activities every year.
CSR COMMITTEE
A committee has to be formulated under section 135(1) which shall consist of
3 or more directors out of which at least one director has to be an
independent director or it shall consist of 2 directors if it is a company which is
not obligated to appoint independent directors as provided under section
149(4).

FUNCTIONS OF THE CSR COMMITTEE 135(3)

a) formulation and recommendation to the board of a CSR policy which shall
indicate the activities under taken by the company. [only activities provided
under schedule VII can be chosen for the purpose of CSR activities]

b) recommend the amount of expenditure as incurred in activities referred to

in clause (a)

c) monitor the CSR policy of the company from time to time.

FUNCTIONS OF THE BOARD 134(4)

a) approve CSR policy as recommended by the committee & disclose
contents of such policy in its report & also place it on to the website of the
company, if any, in manner as may be prescribed.

b) ensure that the activities as are included in the CSR policy are undertaken
by the company.

under section 135(5) it has been made the responsibility of the board of the
company to make sure that the company spends at least two percent of the
average net profits made during the preceding three years [or where the
company has not completed the period of three financial years since its
incorporation during such immediately preceding financial years], in
pursuance of its corporate social responsibility policy.

Proviso II to section 135(5) states that if the company fails to spend such
amount, the board shall, in its report u/s 134(3)(0) specify the reasons for not
spending such an amount.

Proviso III states that if the company exceeds the amount that it is required to
spend, then, it can set it off in such succeeding financial years & in such
manner as may be prescribed.