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Corporate Law Long Type
Corporate Law Long Type
The legal principle of "lifting of corporate veil" is a crucial concept in company law that aims to
ensure accountability and prevent misuse of the corporate structure. Under this principle, in
exceptional circumstances, the separation between a company and its shareholders can be
disregarded by the courts, holding the shareholders personally liable for the company's debts or
wrongful actions. This is usually done to prevent fraud, illegal activities, or when the corporate
structure is being used to shield the shareholders from their responsibilities. By lifting the
corporate veil, the courts can pierce through the company's legal persona and directly attribute
the liabilities to the shareholders, safeguarding the interests of creditors and stakeholders.
The "Memorandum of Association" (MOA) is a fundamental legal document that serves as the
company's charter or constitution. It defines the company's scope of activities, outlines its
primary objectives, and establishes its relationship with its shareholders and the external world.
The MOA is a crucial document for company registration, as it sets the company's scope and
limitations, making it an indispensable reference for any activities the company undertakes. It
acts as a contract between the company and its members, binding them to the stated objectives
and ensuring conformity with the company's purpose. Any actions taken by the company
outside the scope of the MOA are deemed ultra vires (beyond the legal powers) and are
considered void. Thus, the MOA serves as the cornerstone of a company's legal framework,
providing clarity on its purpose and guiding its actions throughout its existence.
Unit 2
*Question 1: Define the term director.*
A director is an individual appointed to the board of a company to manage its affairs and
represent the shareholders’ interests. Directors play a crucial role in decision-making, policy
formulation, and overall governance of the company.
*Question 2: Explain the powers and duties of a director.*
*Powers:*
1. Management Decisions: Directors have the authority to make strategic decisions and policies
for the company.
2. Financial Decisions: They can approve budgets, investments, and financial transactions.
3. Appointments: Directors can appoint key executives and managerial personnel.
4. Legal Matters: They may represent the company in legal proceedings and contracts.
*Duties:*
1. Fiduciary Duty: Directors must act in good faith and in the best interests of the company and
its shareholders.
2. Duty of Care: They are required to exercise due diligence and prudence in decision-making.
3. Conflicts of Interest: Directors must avoid situations where personal interests conflict with
the company’s interests.
4. Compliance: They are responsible for ensuring the company complies with laws and
regulations.
3. Independent Director: Has no substantial relationship with the company, providing unbiased
advice.
4. Managing Director: Holds a significant executive position, responsible for overall
management.
4. Consent and Disclosure: Directors must provide their consent and disclose other directorships
before appointment.
*Question 5: Explain the liabilities of directors.*
Directors can be held liable for:
1. Breach of Duties: Failure to act in the company’s best interests or exercising due care.
2. Mismanagement: Negligence leading to financial losses or harm to the company.
3. Non-compliance: Not adhering to legal and regulatory requirements.
4. Fraud: Involvement in fraudulent activities or wrongful gain.
*Question 6: Explain the qualifications and disqualifications of directors relating to the
appointment of directors.*
*Qualifications:* There are no specific educational qualifications required to become a director.
Experience, expertise, and knowledge in relevant fields are beneficial.
*Disqualifications:* Directors can be disqualified due to non-compliance, fraud, insolvency,
criminal convictions, or being declared of unsound mind. Disqualification can lead to their
removal from the board.
Unit 3
1. What do you understand by forfeiture of share? Explain the legal provisions regarding
the forfeiture of share? How can forfeiture share be reissued?
Forfeiture of shares refers to the process of canceling and seizing a shareholder’s shares due to
non-payment of calls (installments on the share’s value). Legal provisions regarding forfeiture of
shares are typically outlined in the company’s articles of association. Before forfeiting shares,
the company must follow due process, including sending notices to the shareholder and
providing a reasonable period for payment. Once shares are forfeited, the shareholder loses all
rights and interest in them. Forfeited shares can be reissued by the company to new or existing
shareholders, typically by following the procedure laid out in the articles of association.
2. What is share capital? Explain its different froms?
Share capital is the total amount of capital raised by a company through the issue of shares. It
represents the owners’ equity in the company. Share capital can be of two types: authorized
share capital and issued share capital. Authorized share capital is the maximum value of shares
a company is allowed to issue, as stated in its memorandum of association. Issued share capital,
on the other hand, is the portion of authorized share capital that has been issued to
shareholders.
3. What do you mean by transfer of share? Explain the provisions regarding transfer of
shares ?
Transfer of shares refers to the process of changing ownership of shares from one person to
another. Provisions regarding transfer of shares are generally laid down in the company’s
articles of association and the Companies Act. The shareholder wishing to transfer the shares
must execute a valid instrument of transfer, and the company must register the transfer in its
books. The company has the right to refuse transfer under certain circumstances, like if the
shares have not been fully paid or if there are specific restrictions on transfer mentioned in the
articles.
4. what are the provisions of companies act in respect of registration and satisfaction of
charges?
The Companies Act contains provisions related to the registration and satisfaction of charges.
According to these provisions, a company must register charges (security interests) created on
its assets within a specified time frame. Failure to register a charge within the prescribed time
may result in it becoming void against liquidators, creditors, and other stakeholders. The
company must also maintain a register of charges, which is available for public inspection. When
the charge is satisfied (i.e., the debt is paid off), the company must also register the satisfaction
of the charge.
5. What is divided? What are the statutory provisions regarding declaration and payment
of dividend?
Dividend is a portion of a company’s profit that is distributed to its shareholders as a return on
their investment. Statutory provisions regarding declaration and payment of dividend are
outlined in the Companies Act. The company can only declare and pay dividends out of its
profits available for distribution, after fulfilling certain legal requirements like setting aside
money for depreciation, taxation, and any other specific reserves. The declaration of dividends
must be approved by the company’s board of directors and, in some cases, by the shareholders
at a general meeting.
6. what is meant by allotment of shares? What are the provisions of law with respect to
allotment of shares?
Allotment of shares refers to the process of issuing shares to subscribers who have applied for
them during the company’s initial public offering (IPO) or subsequent rights issue. The
provisions of law regarding allotment of shares are governed by the Companies Act and the
company’s articles of association. The company must follow a fair and transparent allotment
process, ensuring that shares are allotted in accordance with the rules and regulations. After
allotment, the company must file a return of allotment with the Registrar of Companies,
providing details of the shares allotted.
Unit 4
1. What do you mean by winding up of a company?Discuss the circumstances in which a
company may be wound up by the NCLT ?
Winding up of a company is a legal process that leads to the dissolution of a company. It
involves the liquidation of the company’s assets, settlement of its liabilities, and the
distribution of any remaining funds or assets among its shareholders. The primary objective
of winding up is to bring the affairs of the company to an orderly conclusion when it can no
longer continue its business operations profitably or sustainably.
There are several circumstances under which a company may be wound up by the National
Company Law Tribunal (NCLT):
a) Inability to pay debts: If the company is unable to meet its financial obligations
and is deemed to be insolvent, it may be wound up by the NCLT.
b) Special resolution: The company’s members (shareholders) can pass a special
resolution at a general meeting, resolving that the company be wound up by the
NCLT.
c) Oppression and mismanagement: If the affairs of the company are conducted in
a manner oppressive to any members or prejudicial to the interests of the
company as a whole, the NCLT may order its winding up.
d) d) Unlawful activities: If the company is found to be engaged in unlawful
activities or conducts its business in contravention of the law, the NCLT may order
its winding up in the interest of public order and morality.
e) Just and equitable grounds: The NCLT may order the winding up of a company if
it believes it is just and equitable to do so, taking into account the overall
circumstances and interests of the company and its stakeholders.
2. define proxy state the statutory provisions relating to proxy?
Proxy, in the context of company meetings, refers to the appointment of a person (proxy-holder)
to represent and vote on behalf of a shareholder who is unable to attend the meeting in person.
This provision enables shareholders to participate in decision-making processes even if they
cannot physically be present at the meeting.The statutory provisions related to proxy are
outlined in the Companies Act. According to these provisions, a member of a company can
appoint a proxy to attend and vote at a general meeting on their behalf. The appointment of a
proxy is made through a written instrument, either in physical or electronic form, and should be
submitted to the company before the meeting.
3. Define voting. what are the various methods of voting at company meeting?
Voting at company meetings is the process through which shareholders express their
preferences or opinions on specific matters brought before the meeting. There are several
methods of voting at company meetings:
a) Voting by show of hands: In this method, each member present at the meeting
has one vote, regardless of the number of shares they hold. Decisions are made
based on a simple majority.
b) Voting by poll: A poll can be demanded either before or after a show of hands. In
a poll, votes are cast on a one-share-one-vote basis. This method ensures a fair
representation of each shareholder’s interest based on their shareholding.
c) Postal ballot: Companies may provide the option of postal ballot, allowing
shareholders to vote by mail. Shareholders receive the proposed resolutions
along with voting instructions, and they can cast their votes in writing and send
them back to the company.
d) Electronic voting: Some companies offer the facility of electronic voting to
shareholders, allowing them to cast their votes online or through a mobile app.
Electronic voting provides a convenient and efficient way for shareholders to
participate in decision-making.
4. What is annual general meeting ?state the legal provisions regarding calling of such a
meeting ?
An Annual General Meeting (AGM) is a mandatory yearly gathering of a company’s
shareholders, where key company matters are discussed and decisions are made. The AGM
serves as a platform for shareholders to interact with the company’s management, raise
concerns, and receive updates on the company’s performance.
Legal provisions regarding calling an AGM include:
a) Timing: The AGM must be held within six months from the end of the company’s
financial year.
b) Notice: A notice of the AGM must be sent to all shareholders, directors, and
auditors within a prescribed time frame, as specified in the Companies Act.
c) Location: The meeting should be held during business hours on a working day at
the registered office of the company or at a place within the city, town, or village
where the registered office is situated.
The AGM Is an essential corporate governance requirement, promoting transparency,
accountability, and engagement between a company and its shareholders.