Companies Act 2013 Important Points Summary

Study Notes
Companies Act, 2013

BASIC CONCEPTS
Companies Act – important points
Introduction
 The Companies Act 2013 is an Act of the Parliament of India

 The Companies Act, 2013 (the Act) was enacted with a view to consolidate and amend
the law relating to companies. It replaced the erstwhile Companies Act, 1956.
 The Act got its assent in the Lok Sabha on December 18, 2012 and in the Rajya Sabha
on August 08, 2013. After having obtained the assent of the President of India on August
29, 2013, it became the Companies Act, 2013.
 The Act came into force on September 12, 2013 with only 98 provisions of the Act
notified. A total of another 184 sections came into force from 1 April 2014.
 Companies Act, 2013 regulates incorporation of a company, responsibilities of a
company, directors, dissolution of a company, etc.
 The Act came up with many new concepts like One Person Companies (OPC), Women
Directors, Corporate Social Responsibility, Registered Valuers, Rotation of Auditors,
Class Action Suit, Dormant Company, Fast Track Mergers, Serious Fraud Investigation
Office.
SALIENT FEATURES OF THE ACT
The Companies Act 2013 contains 29 Chapters, 7 Schedules, 470 sections as against the
Companies Act, 1956 which consists of 658 sections under 13 Parts and 15 schedules. In so far
as section numbers are concerned more than 200 sections have been deleted from the
Companies Act, 1956. The Act shall apply on: -
 Companies incorporated under this Act or any previous company law

 Insurance companies except where provisions of this Act inconsistent with
Insurance Act, 1938 or IRDA,1999
 Banking Companies except inconsistencies with the Banking Regulation Act, 1949
 Companies involved in the generation or supply of electricity, Electricity Act, 2003
 Company governed by Special Act etc.
Understanding Key Concepts/terms
Promoter
a) A person who has been named as such in a prospectus or is identified by the company
in the annual return referred to in Section 92 of 2013 Act that deals with annual return; or
b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
c) in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act (except a person who is acting merely in a professional
capacity) [section 2(69) of 2013 Act]
Independent Director
A director who is
 a person of integrity and possesses relevant expertise and experience and
 is not a managing director or a whole-time director or a nominee director or
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 a promoter of the company or its holding, subsidiary or associate company and

 has no pecuniary relationship, other than remuneration as director or having transaction
not exceeding 10% of his total income with the company
Key managerial personnel (KMP) include:

 Chief Executive Officer (CEO) or the managing director (MD) or the manager;
 the company secretary;
 the whole-time director;
 the Chief Financial Officer
 such other officer, not more than one level below the directors as may be prescribed
Annual General Meeting
 It is an interaction between the management and the shareholders of the Company.

 The Companies Act, 2013 makes it compulsory to hold an annual general meeting to
discuss the yearly results, auditor’s appointment and so on.
 An annual general meeting must be held by every company once a year without fail.
There cannot be a gap of more than 15 months between two AGMs.
 An AGM gives insights into what steps made the company more successful and which
steps caused loss. it helps the members and the board to decide the future course of
action.
 An AGM must be held on a working day.
Extraordinary General Meeting
 An Extraordinary General Meeting (an EGM) can be defined as a meeting of

shareholders which is not an Annual General Meeting (an AGM).
 It is held when some urgent issue becomes about the company arises or any situation of
crisis and it requires the input of all senior executives and the Board.
 Members, shareholders, and execs must be instructed on the purpose of the meeting so
they have time to prepare their valuable input and then, collectively decide further course
of action.
Special and Ordinary Resolution
An ordinary resolution is referring to a resolution, passed by the members of the

company by a bare majority. A special resolution, on the other hand, is the resolution,
that is affirmed by the members of the company by three-fourth majority.
BASIS FOR
ORDINARY RESOLUTION SPECIAL RESOLUTION
COMPARISON
Meaning When at the general meeting, simple When at the general meeting, super
majority is required to move the majority is required to pass the
resolution, it is called as Ordinary resolution, it is known as Special
Resolution. Resolution.
Consent of At least 51% members should be in At least 75% members should be in
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BASIS FOR
ORDINARY RESOLUTION SPECIAL RESOLUTION
COMPARISON
members favor of the motion. favor of the motion.
Registration A copy of OR should be filed with A copy of SR must be filed with

with ROC ROC, in certain cases. ROC.
Business Ordinary business or special Special business.

transacted business, depending on requirements
of the Act.
Majority Rule and Minority Rights

In corporate world, all democratic choices and control of an organization are made with
the majority rule that is deemed to be truthful and justified. Majority power has exquisite
importance in the running of a corporation and the “Courts will now not generally
interfere at the instance of the shareholder in matters of internal management.
o Majority Powers
A company stands as an artificial entity. The directors run it but they act according to
the wish of the majority. The directors accept the resolution passed by the majority
of the members. Unless it is not within the powers of the company. The majority
members have the power to rule and also have the supremacy in the company. But
there is a limitation in their powers. The following are two limitations:
o Limitations
The powers of the majority of the members are subject to the MoA and AoA of the
company. A company cannot authorise or ratify any act legally outside the
memorandum. This will be regarded as the ultra vires of the company.
The resolution made by the majority should not be inconsistent relating to The
Companies Act or any statutes. It should also not commit fraud on the minority by
removing their rights.
o Principle of Non-Interference
The general rule states that during a difference among the members, the majority
decides the issue. If the majority crushes the rights of the minority shareholders,
then the company law will protect it. However, if the majority exercises its powers in
the matters of a company’s internal administration, then the courts will not interfere
to protect the rights of the majority.
o Benefit and Justification

The benefit and the justification of the decision of the case are:
 Recognises the country’s legal personality
 Emphasises the necessity of the majority making the decisions
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 Avoid the multiplicity of suits

o Exceptions to the Rule
The rule is not absolute for the majority; the minority also have certain protections.
The Non-interference principle does not apply to the following:
 Ultra Virus Act

An individual shareholder can take action if they find that the majority has done an
illegal act or ultra virus act. The individual shareholder has the power to restrain the
company. This is possible by the injunction or the order of the court.
 Fraud on Minority
If the majority commits fraud on the minority, then the minority can take necessary
action. If the definition of fraud on the minority is unclear, then the court will decide
on the case according to the facts.
 Wrongdoer in Control
If the company is in the hands of the wrongdoer, then the minority of the shareholder
can take representation act for fraud. If the minority does not have the right to sue,
then their complaint will not reach the court as the majority will prevent them from
suing the company.
 Resolution Requiring Special Majority

If the act requires a special majority, but it passes by a simple majority, then an
individual shareholder can take action.
 Personal Action
The majority of shareholders always oblige to the rights of the individual
membership. The individual member has the right to insist on the majority on
compliance with the statutory provisions and legal rules.
 Breach of Duty
If there is a breach of duty by the majority of shareholders and directors, then the
minority shareholder can take action.
 Prevention of Oppression and Mismanagement

To prevent the majority of shareholders from oppression and mismanagement, the
minority can take action against them.
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Types of Companies
Types of companies
Dormant
Private Public
Company
Private One person Small

Company Company Company
Private  Restricts the right to transfer shares

company  Minimum members – 2 (else it’s a One person company)
 Maximum members – 200 (increased from 50 earlier)
 Minimum directors = 2
 Has to use the words ‘Private Limited’ in its name
Public Company  Company whose shares are freely transferable
 Minimum members = 7
 Maximum members – no limit
 Minimum Directors = 3, in case of listed companies, at least 1/3 as
independent directors
 Has to use the words ‘Public Limited’ or ‘Limited’ in its name
Note – subsidiary of a public company will be deemed to be a public company too

(irrespective of it being in nature of public or private company independently)
One Person A private company with only one person as its member
Company
Note – in Budget 2021-22 the government has proposed the following:
o OPCs will henceforth be allowed to convert into any other type of company
at any time and will not face any restriction on either paid-up capital or
turnover.
o The government also reduced the residency limit for Indian citizens to set
up an OPC from 182 days to 120 days, allowing even non-resident Indians
(NRIs) to incorporate OPCs in the country.
Small Company  Max Paid up capital = Rs.50 Lakh (or a higher amount as prescribed but not
more than Rs.10 crore)
and
 Max turnover = Rs.2 crore (or a higher amount as prescribed but not more than
Rs.100 crore)
Note - The Finance Minister, in Budget 2021-22, has proposed to revise definition
under Companies Act, 2013 for small companies by increasing their threshold:
 for capitalisation to not exceeding INR 50 lakh to not exceeding INR 2
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crore and
turnover not exceeding INR 2 crore to not exceeding INR 20 crore
Note:
A company shall not be a small company, if
 It is a public company ;or
 It is a holding company of any company ;or
 It is a subsidiary company of any company
 It is a company registered under section 8 (i.e. non-profit company); or
 It is a company or a body corporate governed by any special Act
Dormant company can be classified as dormant when it is formed and registered under
Company this 2013 Act for a future project or to hold an asset or intellectual property and
has no significant accounting transaction. Such a company or an inactive
company may apply to the ROC in such manner as may be prescribed for
obtaining the status of a dormant company.
Other company concepts
Listed company a company which has any of its securities listed on any recognised stock
exchange;
Government  Company in which the government (Central or/and State) has at least 51%
Company/Public shareholding
sector company  Subsidiary of a Government company
Holding Also called Parent company
company The company holding shares in another company
Subsidiary  A company in which the parent company has majority stake (i.e. at least 51%
company shareholding) or
 controls the composition of the Board of Directors
Associate A company in which another company has minority stake (i.e. less than 50%
company shareholding) and has significant influence over it (it includes a joint venture)
Note:
“Significant influence” means control of at least 20% of total voting power, or
control of or participation in business decisions under an agreement.
“joint venture” means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement;.
Unlimited a company not having any limit on the liability of its members;
company
Section 25 Commonly referred to as the non-for-profit companies, Section 25 companies
company were called so as they were defined under Section 25 of the erstwhile Companies
Act 1956.
(now Section 8 However, under the Companies Act, 2013, such companies are licensed under
companies) Section 8 of Companies Act, 2013.
 These are the companies formed for promoting charitable objects of

commerce, art, science, religion, charity or any other charitable purpose.
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 The profits accrued or any other income obtained is used in promotion of

its objectives and
 it prohibits payment of any dividend to its members
Foreign A company or body corporate incorporated outside India which –

Company  has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
 conducts any business activity in India in any other manner
Nidhi A company which has been incorporated as a Nidhi with the object of cultivating
the habit of thrift and savings amongst its members and receiving deposits
from, and lending to, its members only, for their mutual benefit
Section 9 Characteristic Features of a Company
1. Incorporated association - A company is formed and registered by complying with the

prescribed formalities prescribed under the Act.
2. Artificial person – A company is a real person Because it has some personality. Like a
person It can contract it can acquire property etc. but it is not a natural person It cannot
fall ill or die but it can be declared as insolvent it exists only in the eyes of law. Company
is not a fictitious person.
3. Separate legal entity - A company is distinct from its member that means rights and
obligations of a company is different from its members. Thus, a company has its
independent corporate existence. It is regarded as an entity separate from its members.
By incorporation under the Act, the company is vested with a corporate personality
which is distinct from the members who compose it.
The very effect of the concept of separate legal entity is that: -
 A member can transfer his property to the company and vice versa.
 A person can be a member, director, employee and creditor of the
company simultaneously. Company cannot be called as an agent of
members or directors
4. Perpetual succession - In case of death of all members of a company the shares held
by those members shall vest in their legal representative or nominee. Death, Insolvency,
Insanity etc. of any member does not affect the continuity or existence of a company
thus the life of the company does not depend upon the life of its members. Members
may come and go but the company goes on forever.
5. Common seal - Also known as official signature of a company and now it is optional not
mandatory.
6. Separate management - The members do not participate in day-to-day management of
the company. The management of the company lies in the hand of Elected
representatives of members, commonly known as Board of Directors. They can be
removed by members, hence ultimate control over the company lies with members. Day-
to-day management-Board of directors. Ultimate control-Members of the company.
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7. Transferable shares - Shares of a company are movable property and can be

transferred in the manner provided in the articles. In a Private company the right to
transfer shares is restricted whereas in a Public company the shares are freely
transferable.
8. Separate property – In an Unlimited company every member is liable to contribute to
the assets of the company until all the debts of the company are paid in full. In a
company limited by shares the liability of the members is up to the amount unpaid on the
shares held by every member. In a company limited by guarantee the liability of the
members is the amount guaranteed by every member. Lastly, in a company limited by
guarantee and having shared capital the liability of the members is the total amount
unpaid on the shares held by a member and the amount guaranteed by him.
Lifting or Piercing of corporate veil
A company does not represent its members but is a separate legal entity distinct and separate
from its members. The concept of corporate veil means that when a company is incorporated, it
is accorded the status of being a separate legal entity which demarcates the status of the
company and the members or shareholders that it is composed of. On the other hand, the
concept of lifting of corporate veil means ignoring the separate identity of a company or
disregarding the corporate personality and looking behind the real persons who are in the
control of the company.
Circumstances in which lifting of corporate veil is lifted
There are two circumstances under which the Corporate Veil can be lifted, they are: -
 Statutory Provisions – Instances when this can be given effect are officer in default
(Section 5), failure to refund application money (Section 69) etc.
 Judicial Interpretations – Here the courts have been vested with the discretion to lift the
corporate veil on certain grounds such as fraud or improper conduct, tax evasion etc.
Section 3 Formation of a company
Company is formed for lawful purpose.
 Public Company to be formed by 7 or more person & maximum unlimited

 Private Company to be formed by 2 or more people & maximum 200
 One Person Company (OPC) can be incorporated by one person – The incorporation of
an OPC also requires that the memorandum must indicate the name of another person
with his prior written consent, to be filed with the registrar along with its memorandum at
the time of incorporation according to the procedure of law. The person named then
shall become a member of the company in case of subscriber’s death or his incapacity
to contract. The named person can withdraw his consent or the at any time can change
the name of the other person according by giving notice in such a manner prescribed by
law.
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A company by subscribing its name to a memorandum of association and by complying with

the procedure for registration prescribed under the Act, can be formulated according to the
provisions of law.
Section 4 Memorandum of Association
 It is the constitution or charter of the company that states the objects for which the
company is formed and determines the relationship of the company with outsiders
(creditors, shareholders).
 Content of MoA/ it shall include the following: -
 Name clause
 For Private limited company -Use the word Private limited at the end of
the name
 For Public Limited Company- Use the word limited at the end of the name
 Exception - A Limited company registered under Section 8 (company
established for charitable purpose etc.) may be allowed not to use the
word limited or private limited at the end of its name.
 Name of the company in the MOA should not be identical with or
resemble to the name already existing (under this law or any previous
law)
 Name if used by company should constitute an offence under any law if it
is undesirable in the opinion of Central Government, should not give
impression of being related to CG, SG etc. or as may be prescribed.
However, it can be used if approval of CG is obtained.
 Registered office clause – state where situated
 Object clause – main, incidental & others
 Liability clause (liability of the members) –
 limited by shares or by guarantee
 limited by guarantee specifically state liability in case of winding up.
 Capital cause –
 division of capital along with name
 at least 1 share by each subscriber opposite to name
 Association/subscription clause- subscribers to declare their desire to be formed
into a co. & take shares stated against their name
 Form of MOA should be in Table A, B, C, D and E of Schedule I
 Reservation of the name for a period of 20 days in case of new company & 60 days in
case of existing company from the date of the application. However, if after reservation it
is found that name was applied by furnishing incorrect information then:-
 If company is not incorporated then the reserved named will be cancelled and the
person making application will be liable for penalty up to 1 lakh Rs.
 If company is incorporated then the Registrar may after giving company the
opportunity of being heard either: -
 Direct the company to change name within 3 months after passing
ordinary resolution; OR
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 Take action to strike off the company’s name from Register of

Companies; OR
 Petition for the winding up of the company
Section 5 Articles of Association
 It is the bye laws of the company which regulates the internal affairs/management of the
company and the relationship between company and its members.
 It can be altered by passing a Special Resolution
 Alteration be made either on formation or by amendment in the Articles
 Private Co. agreed by all members
 Public Co. Special Resolution
 Form of AoA should be in Table F, G, H, I & J
 Contents AOA
 Regulations for management,
 Such matters as may be prescribed,
 Additional matters if considered necessary for its management
 Entrenchment Provisions: Contain provisions for entrenchment: The articles may
contain provisions for entrenchment (to protect something) to the effect that specified
provisions of the articles may be altered only if conditions or procedures as that are
more restrictive than those applicable in the case of a special resolution, are met or
complied with. Manner of inclusion of the entrenchment provision: The provisions for
entrenchment shall only be made either on formation of a company, or by an
amendment in the articles agreed to by all the members of the company in the case of a
private company and by a special resolution in the case of a public company.
Section 7- Incorporation of company
 After getting the name approved, the following documents along with the application and
prescribed fee, are to be filed with the Registrar: -
 Memorandum of Association
 Articles of Association
 The agreement, if any, which the company proposed to enter into with any
individual for appointment as its Managing or Whole Time Director or Manager.
 A declaration that the requirements of the Act and the rules framed there under
have been complied with. This declaration is required to be signed by an
advocate of the Supreme Court or High Court or an attorney or a pleader having
the right to appear before High Court or a Company Secretary or a Chartered
Accountant in whole time practice in India who is engaged in the formation of a
company, or by person named in the Articles as a Director, Manager or Secretary
of the company.
 In the case of a public company having share capital, where the Articles name a
person as director/directors, the list of the directors and their written consent in
prescribed form to act as directors and take up qualification shares.
 A company shall, on and from the fifteenth day of incorporation and all times
thereafter, have a registered office capable of receiving and acknowledging all
communications and notices as may be addressed to it.
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 Apart from the above, the company shall furnish to the Registrar a verification of
its registered office under Section 12 (2) within 30 days of incorporation in such
manner as prescribed.
 Under section 7 (2) the Registrar shall on the basis of documents and information
filed for the formation of a company, shall register the aforesaid documents and
information and issue a certificate that the company is incorporated in the
prescribed form to the effect that the proposed company is incorporated under
this Act.
 Section 7 (3) further provides that on and from the date of incorporation
mentioned in the certificate of incorporation the Registrar shall allot to the
company a Corporate Identification Number (CIN) which shall be the distinct
identity of the company and which shall also be included in the certificate of
incorporation. The company becomes a legal entity from the date mentioned in
the certificate of incorporation and continues to be so till it is wound up.
Section 8- Formation of companies with charitable objects, etc.
 The Registrar of Companies may allow person or an association of persons to be

registered as a Company under the Companies Act if it has been set up for promoting
commerce, arts, science, sports, education, research, social welfare religion, charity,
protection of environment or any such other useful object and intends to apply its profits
or other income in promotion of its objects.
 Such company has to prohibit payment of any dividend to its members.
 Section 8 companies enjoy all the privileges of and are subject to all the obligations of
limited companies.
 A firm may be a member of the company registered under this section.
 Section 8 companies shall not alter the provisions of its memorandum or articles except
with the previous approval of the Central Government.
 Central Government may, by licence, allow the company to be registered under this
section subject to such conditions as it deems fit and to change its name by omitting the
word “Limited”, or as the case may be, the words “Private Limited” from its name. The
Registrar shall, on application, in the prescribed form, register such company under this
section and all the provisions of this section shall apply to that company.
 Central Government may, by order, revoke the licence granted if the company
contravenes any of the requirements of this section or any of the conditions subject to
which a licence is issued or the affairs of the company are conducted fraudulently or in a
manner violative of the objects of the company or prejudicial to public interest, and
without prejudice to any other action against the company under this Act, direct the
company to convert its status and change its name to add the word “Limited” or the
words “Private Limited”, as the case may be, to its name and thereupon the Registrar
shall on application, in the prescribed form, register the company accordingly.
 Where a licence is revoked the Central Government may, by order, if it is satisfied that it
is essential in the public interest, direct that the company be wound up or amalgamated
with another company registered under this section. No such order shall be made unless
the company is given a reasonable opportunity of being heard.
 Where a licence is revoked and the Central Government is satisfied that it is essential in
the public interest that the company so registered should be amalgamated with another
company registered under this section and having similar objects, then the Central
Government may, by order, provide for such amalgamation to form a single company
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with such constitution, properties, powers, rights, interest, authorities and privileges and
with such liabilities, duties and obligations as may be specified in the order.
 If on the winding up or dissolution of a section 8 company, there remains, after the
satisfaction of its debts and liabilities, any asset, they may be transferred to another
company registered under this section and having similar objects, subject to such
conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to
the Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and
Bankruptcy Code, 2016.
Section 10A- Commencement of business, etc.
 A company incorporated after the commencement of the Companies (Amendment)

Ordinance, 2018 and having a share capital shall not commence any business or
exercise any borrowing powers unless—
 a declaration is filed by a director within a period of 180 days of the date of
incorporation of the company in such form and verified in such manner as may
be prescribed, with the Registrar that every subscriber to the memorandum has
paid the value of the shares agreed to be taken by him on the date of making of
such declaration; and
 the company has filed with the Registrar a verification of its registered office.
 Where no declaration has been filed with the Registrar within a period of 180 days of the
date of incorporation of the company and the Registrar has reasonable cause to believe
that the company is not carrying on any business or operations, he may initiate action for
the removal of the name of the company from the register of companies
Section 12- Registered office of company
 A company shall, within 30 days of its incorporation and at every time thereafter, have a
registered office capable of receiving and acknowledging all communications and
notices addressed to it.
 Every company to:
 Paint or affix its name and address of its registered office, and keep the same
painted and affixed, on the outside of every office or place in which its business
is carried on.
 Such display must be in a conspicuous position, in legible letters in characters
and letters of the local language in addition to any other language (if chosen by
the company);
 Get its name, address of its registered office and the corporate identity number
and other details, on all its business letters, bill heads, notices and other official
publications;
 Notice of the situation of the registered office and of every change therein must be sent
to the Registrar (otherwise than through a statement as to the address of the registered
office in the annual report) within 30 days of the date of incorporation and the date of
change.
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Section 13 Alteration of Memorandum
 A company may, by special resolution and after complying with all the procedure alter
the provisions of its Memorandum.
 Alteration of Capital clause

o Authorization provision in AOA, Pass Ordinary Resolution in GM,
o File notice of increase in share capital to ROC in Form SH 7 within 30
days of passing of the resolution
 Alteration of Liability Clause
o Alteration may be from Limited company to unlimited company or vice-
versa. Pass SR in GM, File SR Copy to ROC (Form MGT 14) within 30
days of passing SR.
 Alteration of Name Clause

o Entire Name Change - Pass Special Resolution and CG approval and
MGT 14 to ROC for SR
o Addition/ Deletion of Word Private - Pass Special Resolution file FORM
MGT 14 to ROC for SR
 The change of name shall not be allowed to a company which has
defaulted in filing its annual returns or financial statements or any
document due for filing with the Registrar or which has defaulted in
repayment of matured deposits or debentures or interest on deposits
or debentures
 On any change in the name of a company, the Registrar shall enter
the new name in the register of companies in place of the old name
and issue a fresh certificate of incorporation with the new name and
the change in the name shall be complete and effective only on the
issue of such a certificate.
 Alteration of Situation/ Registered Office Clause
 Alteration of Object Clause –

o Pass SR in GM, File SR Copy to ROC (Form MGT 14) within 30 days of
passing SR, ROC shall register the same within 30 days
o Additional compliance is applicable in case of alteration of object clause
when there is unutilized proceeds of prospectus issue.
Section 14 Alteration of Articles
 A company may, by special resolution, alter its Articles and File SR Copy within 30 days to
ROC along with altered AOA.
 Any alteration having the effect of conversion of a public company into a private company
shall not be valid unless it is approved by an order of the Central Government.
Section 16 Rectification of name of company
 In case, if the name of a company on its registration or on registration with changed name
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It has come to the knowledge of the

company(Suo moto)
OR
If in the opinion of the Central Government

the name of the company
 Is identical with or too nearly resembles the name by which a company in existence had
been previously registered.
 It may direct the company to change its name and the company shall change its name or
new name, as the case may be, within a period of three months from the issue of such
direction, after passing an Ordinary Resolution.
 Notice of change to the registrar:
 Where a company changes its name or obtains a new name, it shall within a period of 15
days from the date of such change, give notice of the change to the Registrar along with
the order of the Central Government, who shall carry out necessary changes in the
certificate of incorporation and the memorandum.
 It has been decided by the courts that change of name in the company shall not affect any
rights or obligations of the company. Any legal proceedings, which might have commenced in
the former name, shall be continued with the new name.
 If any company has changed its activities which are not reflected in its name, it shall change
its name in line with its activities within a period of six months from the change of activities
after complying with all the provisions as applicable to change of name.
Section 17 Copies of memorandum, articles, etc., to be given to members
 Within 7 days of request

 On payment of fees
Section 18- Conversion of companies already registered.
 A company may convert itself in some other class of company by altering its Memorandum
and Articles of association.
 If there is a conversion of a class of company into some other class of company then
Registrar on an application by the company and satisfying itself of the provisions complied
under this section: -
 Close former registration of company
 Register the company under this section, issue certificate of incorporation as its
registering for the first time
 Registration of company under this section shall not affect any debts, liabilities, obligations or
contracts incurred or entered into, by or on behalf of the company before conversion and
15
such debts, liabilities, obligations and contracts may be enforced in the manner as if such
registration had not been done.
Section 23 Public offer and Private Placement
 Issue of securities by Public Company: -

 To Public through Prospectus (Public Offer) [Part I]
 Through Private Placement [Part II]
 Through Right issue or Bonus Issue
o In case of listed company or companies which intend to list their securities, can issue
their securities through SEBI Act, 1992
 Issue of securities by Private Co. by way of
 Rights issue or Bonus issue
 Through Private Placement
Capital
Issues
Public Private Other

Offers Placement Issues
Further
Initial Public Public Rights Issue Bonus Issue
Offer (IPO) Offer/Follow-
on Public Qualified Institutional
Preferential
Offer (FPO) Institutional Placement
Issue
Placement Programme
 Some important terms: -

 IPO - When an unlisted company makes either a fresh issue of shares or
convertible securities or offers its existing shares or convertible securities
for sale or both for the first time to the public, it is called an IPO. This
paves way for listing and trading of the issuer’s shares or convertible
securities on the Stock Exchanges.
 FPO - When an already listed company makes either a fresh issue of
shares or convertible securities to the public or an offer for sale to the
public
 Private Placements - When an issuer makes an issue of shares or
convertible securities to a select group of persons not exceeding 50, and
which is neither a rights issue nor a public issue, it is called a private
placement.
 Private placement of shares or convertible securities by listed
issuer can be of three types: -
 Preferential allotment - When a listed issuer issues shares
or convertible securities, to a select group of persons in
terms of provisions of Chapter VII of SEBI (ICDR)
16
Regulations, 2009, it is called a preferential allotment. The

issuer is required to comply with various provisions which
inter‐alia include pricing, disclosures in the notice, lock‐in
etc, in addition to the requirements specified in the
Companies Act.
 Qualified institutions placement (QIP) - When a listed
issuer issues equity shares or non-convertible debt
instruments along with warrants and convertible securities
other than warrants to Qualified Institutions Buyers only, in
terms of provisions of Chapter VIII of SEBI (ICDR)
Regulations, 2009, it is called a QIP.
 Institutional Placement Programme (IPP) - When a listed
issuer makes a further public offer of equity shares, or offer
for sale of shares by promoter/promoter group of listed
issuer in which the offer, allocation and allotment of such
shares is made only to qualified institutional buyers in
terms Chapter VIII A of SEBI (ICDR) Regulations, 2009 for
the purpose of achieving minimum public shareholding, it is
called an IPP.
 Rights Issue - When an issue of shares or convertible securities is made
by an issuer to its existing shareholders as on a particular date fixed by
the issuer (i.e. record date), it is called a rights issue. The rights are
offered in a particular ratio to the number of shares or convertible
securities held as on the record date.
 Bonus Issue - When an issuer makes an issue of shares to its existing
shareholders without any consideration based on the number of shares
already held by them as on a record date it is called a bonus issue. The
shares are issued out of the Company’s free reserve or share premium
account in a particular ratio to the number of securities held on a record
date. Through bonus shares, the company shares the profits with its
shareholders in the form of new shares in addition to/instead of paying
dividends.
Section 24 Powers of SEBI to regulate issue of securities

 SEBI is empowered to regulate the matters relating to: -
 issue and transfer of securities and
 non-payment of dividend by listed companies or those companies which intend to
get their securities listed
 forward dealing and insider trading for listed companies or the companies which
intend to get their securities listed
 Central Government, the NCLT or the Registrar of Companies as the case may be, will
have the power to regulate matters relating to: -
 prospectus,
 return of allotment,
17
 redemption of preference shares

 any other matter specifically provided in the Act
Prospectus
 It refers to an information booklet or offer document on the basis of which an investor
invests in the securities of an issuer company. It contains all the relevant information
about the company, promoters, projects, financial details, objects of raising the money,
terms of the issue, etc. and is used for inviting subscription to the issue being made by
the issuer.
 Types of Prospectus
 Shelf Prospectus (Section 31) - A prospectus which enables an issuer to make

a series of issues within a period of 1 year without the need of filing a fresh
prospectus every time. At the time of subsequent issues, the company can file an
information memorandum with Registrar containing all material facts relating to
new charges created, changes in the financial position of the company.
 Red Herring Prospectus (Section 32) – It is issued before a prospectus. It is an
offer document used in case of a book built public issue. It contains all the
relevant details except that of price or number of shares being offered. It is filed
with ROC at least 3 days before the issue opens. Upon the closing of the offer of
securities, the prospectus stating therein the total capital raised, whether by way
of debt or share capital, and the closing price of the securities and any other
details as are not included in the red herring prospectus shall be filed with the
Registrar and SEBI.
 Abridged Prospectus (Section 33) - an abridged version of offer document in
public offer be issued along with the application form of a public issue. It contains
all the salient features from the prospectus. Abridged prospectus would not be
required if application form is given for underwriting agreement or in relation to
securities not offered to public.
Section 26 - Prospectus should include the following details as per
 To be dated and signed, and include financial information and other details specified by
SEBI and Central Government. The date indicated in the prospectus shall be deemed to
be the date of its publication.
 Prospectus to contain:-
 Provide declaration about compliance with the Act and other relevant rules
 To be sigened by every director/proposed director of the company
 To be filed with the Registrar
 Propectus valid for 90 days from date of delivery to Registrar
 Violation will lead to fine of Rs.50,000- Rs.3 Lakh or imprisonment upt o 3 years
or both
Liability for mis-statement in Prospectus
18
Type of liability Section Details
Criminal liability Section 34  Default event - When prospectus includes any statement which
is untrue or misleading in form or context,
 Who is liable - every person who authorizes the issue of
Prospectus
 Liability – imprisonment of 6months -10 years and fine of amount
equal to fraud and up to 3 times of fraud amount; imprisonment
can be 3 years – 10 years in case fraud involves public interest
 Exceptions – if a person proves that such statement or omission
was immaterial or that he had reasonable grounds to believe that
it was true
Civil Liability Section 35  Default event – when a person suffers loss/damage by
subscribing to the securities acting on any statement
included/omitted from prospectus
 Who is liable – Company and every person who is Promoter,
Director, proposed director as mentioned in prospectus,
authorized the issue of Prospectus, an expert mentioned in the
Act
 Liability – pay compensation to every person who has sustained
such loss or damage
 Exceptions – if a person proves that prospectus was issued
without his consent or he gave reasonable public notice upon
becoming aware of the issue or he withdrew his consent before
issue of prospectus
Punishment for Section 36 Default event - Any person who, either knowingly or recklessly
fraudulently makes any statement, promise or forecast which is false, deceptive
inducing persons or misleading, or deliberately conceals any material facts, to induce
to invest money another person to invest in securities or any agreement to obtain
credit from a bank/NBFC.
 Liability - imprisonment of 6months -10 years and fine of amount

Punishment for Section 38  Default event - Any person who makes or abets making of an
personation application in a fictitious name or makes multiple applications in
(making an different combinations of his name, to a company for acquiring, or
Application in a subscribing for, its securities;
 Liability - imprisonment of 6months -10 years and fine of amount
Fictitious Name)
If a person has acquired securities in fictitious name and made
any gain, the court may order disgorgement of gain and such
gain will be credited to the Investor Education and Protection
Fund.
Allotment of Securities by company
Securities
As defined in section 2 of the Securities Contracts (Regulation) Act, 1956:
19
Marketable instruments
of a body corporate like
 shares, scrips, stocks
 Bonds, debentures Derivative Instruments
Rights or interest in
like Futures, options
securities
swaps
Any other instruments Units issued by

as may be declared by Meaning of Collective Investment
the Central Govt. to be Securities Scheme
securities
Units issued by Mutual

Government Security Funds
Security Receipts as
per SARFAESI Act,
2002 NOT to include any ULIP
(unit linked insurance policy)
SARFAESI = Securitisation and or scripts/unit, etc. that
Reconstruction of Financial provide a combined benefit
Assets and Enforcement of of insurance and investment
Security Interest Act, 2002
20
Section 42 Private Placement
 A private placement is a capital raising event that involves the sale of securities to a
relatively small number of selected group of persons (Investors). A private placement is
different from a public issue in which securities are made available for sale on the open
market to any type of investor.
 Private placement means any offer or invitation to subscribe or issue of securities to a
select group of persons by a company (other than by way of public offer) through private
placement offer-cum-application, which satisfies the following conditions:
 select group of persons should have been identified by the Board and not to
exceed 50 or such higher number as may be prescribed (upper limit of 200
persons in aggregate in a financial year has been prescribed) in a financial year,
excluding QIBs and employees
 private placement offer and application shall not carry any right of renunciation
 subscription money to be paid either by cheque or demand draft or other banking
channel and not by cash
 no new offer till allotment under previous offer completed
 no public advertisement or marketing to public
 to be approved by the shareholders of the company by a special resolution; in
the explanatory statement annexed to the notice for shareholders’ approval, the
following disclosure to be made: -
o particulars of the offer including date of passing of Board resolution;
o kinds of securities offered and the price at which security is being offered
o basis or justification for the price (including premium, if any) at which the
offer is being made;
o name and address of valuer who performed valuation;
o amount which the company intends to raise by way of such securities;
o material terms of raising such securities, proposed time schedule,
purposes or objects of offer, contribution being made by the promoters or
directors either as part of the offer or separately in furtherance of objects;
principle terms of assets charged as securities:
 Procedure under private placement
21
Shares and Debenture
 Shares and Debentures are financial instruments for raising funds for a company. Jointly
these two are referred to as securities.
 Share represents ownership interest in the company with entrepreneurial risks and
returns while debenture represents lender’s interest in the company with limited risks
and returns.
 Both will appear on the liabilities side of the company (shares as equity capital under
shareholders’ funds and debentures as borrowings). For the investor, both will be
assets.
 Under Companies Act, 2013, 'Share' means a share in the share capital of a company
and includes stock (Section 2(84)) and Debenture, includes debenture stock, bonds or
any other instrument of a company evidencing a debt, whether constituting a charge on
the assets of the company or not (Section 2(30)).
 The shares or debenture or other interest of any member in a company is movable
property transferable in the manner provided by the articles of the company (section 44).
22
Types of Share Capital
with voting rights
Equity Share Capital

with differential rights as to
dividend, voting or otherwise
(i.e. DVR shares)
Kinds of share
capital of a company
limited by shares Carries preferential right with
respect to payment of dividend
and repayment of capital at
time of winding up
Preference Share
Capital has right to participate in
surplus profits for dividend
or/and right to participate in
any surplus capital in case of
winding up
 A company can raise capital from following sources:

 From Promoters – initial capital is contributed by promoters/directors and their
relatives
 From other investors/public – by public offer (through prospectus or offer of
sale) or private placement
 from existing shareholders – through rights issue
Section 47 Voting Rights
Equity share (with voting Equity - Differential Voting

Preference Share
rights) Rights (DVR)
•Every equity share holder has •The voting power in respect of •vote only on resolutions which
voting right in proportion to his DVR shares shall not exceed directly affect their rights
share in the paid-up equity 74% of total voting power •vote on any resolution for the
share capital of the company including voting power in winding up of the company
•has a right to vote on every respect of equity shares with •vote on any resolution for the
resolution placed before the differential rights issued at any repayment or reduction of
company point of time company’s equity or
preference share capital
•vote on all the resolutions
placed before the company,
(only if the dividend has not
been paid for a period of 2
years or more)
23
Shares with Differential Voting Rights (DVR Shares)
 DVR share refer to equity shares holding differential rights as to dividend and/or voting.
 In India, section 43 of the Companies Act, 2013 allows a company limited by shares to
issue DVRs as part of its share capital.
Issue of Securities at Premium or discount
At Premium (Section 52) At Discount (Section 53)
 Security Premium means the amount  Issue of shares at a discount NOT ALLOWED
over and above the face or par value of  If shares issued at discount, they will be
the security. considered void
 As per Section 52, when
a company issues shares at a  Exceptions:
premium, whether for cash or o issue of sweat equity shares (section 54)
otherwise, a sum equal to the o shares issued at discount to creditors when
aggregate amount of the premium its debt is converted into shares in pursuance
received on those shares shall be of any statutory resolution plan or debt
transferred to a “securities premium restructuring scheme as per RBI guidelines
account”  Penalty in case of non-compliance
o company and every officer who is in default
 Securities Premium can be used for: shall be liable to a penalty = amount raised
o issue of fully paid bonus shares through the issue of shares at a discount or
o to write off preliminary expenses Rs.5 lakh whichever is less, and
o write-off commission paid/discount o company shall also be liable to refund all
on issue of shares or debentures monies received with interest at the rate of
o for premium payable on redemption 12% pa from the date of issue of such shares
o for buy-back of own shares or to the persons to whom such shares have
securities been issued
24
Section 54 Sweat Shares
Issue and redemption of Preference Shares (Section 55)
Issue Redemption
 to be authorized by special resolution  Redemption out of:

 Mention in the resolution, o profits of the company which
o the nature of such shares (cumulative or would otherwise be available
non–cumulative, participating or non– for dividend or
participating, convertible or non-convertible) o proceeds of a fresh issue of
o voting rights, shares made for the purposes of
o redemption such redemption
 can be redeemed only if fully paid
 A company limited by shares:  Create Capital Redemption Reserve
o Cannot issue irredeemable preference equal to face value of preference
shares shares out of profits
o can issue preference shares redeemable  If company unable to redeem or pay
within a period up to 20 years (if authorized dividend, then issue new redeemable
by articles) share of that value, after approval from:
o can issue preference shares for more than o at least 3/4th shareholders of such
20 years and up to 30 years for shares
infrastructure projects (provided redemption o NCLT
of a minimum 10% of such preference
st
shares per year from the 21 year onwards
or earlier)
25
Section 62 Further issue of capital
Rights Issue ESOPs

 offered to existing shareholders as per record date
 issue open period = 15 to 30 days from date of offer  Pass special resolution
 notice of offer to be sent at least 3 days before  free pricing in conformity with accounting
opening of issue policies
 offer to include right to renounce in favour of  minimum 1 year between grant of options
another person and vesting of option
 If the existing shareholder declines the offer, then  company is free to set lock-in period
Board may dispose off in a manner beneficial to the  option granted will not be transferable or
company pledged
Others
 can be offered to other than existing shareholders if authorized by a special resolution and price
determined by valuation report
 Subject to provisions of Chapter III
Section 63 Bonus Shares
 Fully paid-up bonus shares issued to members

 Out of Free Reserves, Securities Premium Account (SPA) & Capital Redemption Reserve (CRR) Account
 It cannot be issued in lieu of Dividend
 Issue must be permitted by Articles
Section 64 Notice to Registrar for alteration of capital
Alteration in share Notice to Registrar Failure to comply

capital
•alteration (like •within 30 days of •Company and

share split, such alteration every officer in
increase in •along with default liable for
authorised altered penalty of
capital) Memorandum Rs.1000 for each
•increase due to day of default or
rights issue or Rs.5 lakh,
FPO whichever is less
•redemption of
preference shares
26
Section 66 Reduction of share capital
 Reduction of share capital is regarded as one of the process of decreasing company’s

share capital (apart from Redemption of preference shares and Buy Back of shares which
are governed by other provisions separately).
 The Reduction of Share Capital means reduction of issued, subscribed and paid-up share
capital of the company.
Permissions and
Who? Why? conditions?
• a company limited by • return any surplus to • authorised by Articles

shares shareholders • Special resolution
• a company limited by • eliminating losses which • confirmation by NCLT
gurantee and having may be preventing the • declaration from directors
share capital payment of dividend - no default in repayment
• to simplify capital of any deposits (including
structure (like by interest
removing uncalled part • Register documents with
from the Balance sheet) Registrar
Section 73 – 76A Acceptance of Deposits by Companies

Deposits from the public are an important mode of finance in the corporate sector. It is
accordingly necessary to control the companies inviting deposits from the public in order to
safeguard the general and wider interest of the public at large.
Meaning: -
 According to the definition given under section 2(31) of the Companies Act, 2013, the term
‘deposit’ includes any receipt of money by way of deposit or loan or in any other form, by
a company, but does not include such categories of amount as may be prescribed in
consultation with the RBI
As per Rule 2(1) (c) of Companies (Acceptance of Deposits) Rules, 2014, “deposit” includes any
receipt of money by way of deposit or loan or in any other form, by a company, but does not
include –
1. SHARE APPLICATION MONEY - If the securities for which application money or

advance for such securities was received cannot be allotted within sixty days from the
date of receipt of the application money or advance for such securities and such
application money or advance is not refunded to the subscribers within fifteen days from
the date of completion of sixty days, such amount shall be treated as a deposit under
these rules.
27
2. AMOUNT RECEIVED FROM A DIRECTOR - The director from whom money is

received, furnishes to the company at the time of giving the money, a declaration
in writing to the effect that the amount is not being given out of funds acquired by
him by borrowing or accepting loans or deposits from others.
3. SUPPLIER ADVANCES - Such advance is appropriated against supply of goods or
provision of services within a period of three hundred and sixty-five days from the date of
acceptance of such advance
4. Borrowing from CG or SG
5. Amount of borrowing from Foreign Government or any foreign citizen, or a foreign
person.
6. Loan received from any banking company
7. Loan received from UTI, IDBI, LIC, or ICICI or any other financial institutions
8. Amount received by a company from any other company
9. Any amount of security deposit received from an employee of the company. Amount
received as security or as an advance from any purchasing agent, selling Agent during
the course of business of the company.
10. Amount received as security or as an advance from any purchasing agent, selling Agent
during the core business of the company. Any amt received against issue of commercial
paper or any other instruments issued in accordance with the guidelines or notification
issued by the RBI.
11. Where the company has issued any secured debentures, amount borrowed is not termed
as deposits to the extent of security
Deposits is covered by
Sec- 73 Sec- 73(2) Sec-74 Sec-76

Prohibition on When company may Repayment of deposits, Acceptance of
acceptance of accept deposit from etc., accepted before deposits from public
deposits from its members commencement of this by certain
public Act. companies.
Prohibition on acceptance of deposits from public 73(1)
 On and after the commencement of this Act, no company shall invite, accept or
renew deposits under this Act from the public except in a manner as provided.
 The section WILL APPLY on NBNFC (NON BANKING NON FINANCIAL COMPANIES)
Section 73 TO 76A
 Provided that nothing in this sub-section i.e. (EXCEPTIONS) shall apply to:-
 A banking company and non-banking financial company as defined in the Reserve
Bank of India Act, 1934
 and to such other company as the Central Government may, after consultation with
the Reserve Bank of India, specify in this behalf.
When company may accept deposit from its members 73(2)
28
A company may, by passing of a resolution in general meeting and subject to such rules as
may be prescribed in consultation with the Reserve Bank of India, accept deposits from its
members on such terms and conditions, including the provision of security, if any, or for the
repayment of such deposits with interest, as may be agreed upon between the company and its
members, subject to the fulfillment of the following conditions:—
Approval by general
• By way of an ordinary resolution at a general meeting
meeting
Security for the • By creation of charge on the assets of the company.

repayment at the option • If the deposit is not so secured, the company shall state in the
of the company circular that the deposit is unsecured.
• A circular shall be issued to the members containing a statement

showing:
Issue of circular to the
members • The financial position of the company,The credit rating obtained,
Total number of existing depositors & Amount due to existing
depositors
• The company shall deposit an amount equal to 15% of the amount

Maintenance of liquid of deposits maturing during a financial year and the financial year
fund next following, to be kept in a scheduled bank in an account called
deposit repayment reserve account.
• The company shall certify that it has not committed any default in
Certificate from the the repayment of deposits accepted before or after the
company commencement of the new Act or payment of interest on such
deposits.
Filing of Circular with the • Copy of the said circular and the statement shall be filed with the
Registrar of Companies within thirty days before the issue of the
Registrar Circular.
Repayment of deposit
 Every deposit accepted by a company shall be repaid with interest in accordance with
the terms and conditions of the agreement.
Failure on the repayment of deposit

 Where a company fails to repay the deposit or part thereof or any interest thereon, the
depositor concerned may apply to the Tribunal for an order directing the company to pay
the sum due or for any loss or damage incurred by him as a result of such non-payment
and for such other orders as the Tribunal may deem fit.
Application of the amount of DRR account

 The deposit repayment reserve account shall not be used by the company for any
purpose other than repayment of deposits.
29
• Private Companies can accept deposits from its members up to 100% of its paid-
up share capital and free reserves without having to comply with the procedural
requirements prescribed under Section 73 like issuing circular, maintaining repayment
reserve etc., provided details of the deposits so accepted is filed with the ROC in the
manner to be specified.
Section 76- Acceptance of deposits from public by certain companies.
 Only a public company, having a NET WORTH of not less than one hundred crore
rupees OR a TURNOVER of not less than five hundred crore rupees, can accept
deposits from the Public.
 Such kind of public company, for the purpose of this Chapter, shall be referred to as
‘Eligible Company’.
 An eligible company is also required to obtain the prior consent of the company in
general meeting by means of a special resolution and also filed the said resolution with
the Registrar of Companies before making any invitation to the Public for acceptance of
deposits.
Conditions to be complied with u/s 76
1. A public company shall comply with the conditions -stated in case of private limited
company accepting deposits from members.
2. Prior credit rating and annual renewal

From a recognised credit rating agency for informing the public the rating given to the
company at the time of invitation of deposits from the public which ensures adequate
safety and the rating shall be obtained for every year during the tenure of deposits
3. Creation of charge on the assets

Every company accepting secured deposits from the public shall within thirty days of
such acceptance, create charge on its assets of an amount not less than the amount of
deposits accepted in favour of the deposit holders .
Terms and Conditions of Acceptance of Deposits by Companies
6 MONTH
Minimum
period Short term deposit not exceeding 10%
of (paid up capital+ free reserves)
repayable after 3 month may be
accepted
Maximum
period
36 month
30
In case of a
Up to 35% of it’s paid up capital and free
Government
reserves
company
For an Eligible Company:
Ceiling limits for

acceptance of From shareholder - up to 10% of (paid up
Deposits capital+ free reserves)
From others - up to 25%of (paid up

capital+ free reserves)
In case of any other

company
For a Company other than an Eligible
Company
It may accept or renew any deposit from its
members, if the amount of such deposits
together with the amount of other deposits
outstanding as on the date of acceptance or
renewal of such deposits does not exceed
twenty-five (25%) per cent of the aggregate
of the paid-up share capital and free
reserves of the company.
Ceiling on Rate of Interest and Brokerage

No company shall accept/renew deposits at a rate of interest exceeding the maximum rate of
interest prescribed by RBI that the NBFCs can pay on their public deposits.
Return of Deposits
Every company shall file a return of deposits, in Form DPT-3, with the Registrar of Companies
on or before 30th June of every year. This return shall contain information as on 31st March
and shall be duly certified by the Auditors of the Company.
Penal rate of interest

A penal rate of interest of 18% per annum shall be paid for the overdue period, in case of
public deposits, whether secured or unsecured, matured and claimed but remaining unpaid.
Appointment of trustee for depositors. -

 No company as mentioned under section 73 or any eligible company shall issue a circular or
advertisement inviting secured deposits unless the company has appointed one or more
trustees for depositors for creating security for the deposits:
 Also, a written consent shall be obtained from the trustee for depositors before their
appointment.
31
 The company shall execute a deposit trust deed in Form DPT-2 at least seven days before
issuing the circular or circular in the form of advertisement.
 No person including a company that is in the business of providing trusteeship services shall
be appointed as a trustee for the depositors, if the proposed trustee -
a) is a director, key managerial personnel or any other officer or an employee of the
company or of its holding, subsidiary or associate company or a depositor in the
company;
b) is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company;
c) has any material pecuniary relationship with the company;
d) has entered into any guarantee arrangement in respect of principal debts secured by
the deposits or interest thereon;
e) is related to any person specified in clause (a) above.
 No trustee for depositors shall be removed from office after the issue of circular or
advertisement and before the expiry of his term except with the consent of all the
directors present at a meeting of the board.
 In case the company is required to have independent directors, at least one independent
director shall be present in such meeting of the Board
Duties of trustees.- It shall be the duty of every trustee for depositors to-
a. ensure that the assets of the company on which charge is created are sufficient to
cover the repayment of the principal amount of secured deposits outstanding and
interest accrued thereon;
b. satisfy himself that the circular or advertisement inviting deposits does not contain any
information which is inconsistent with the terms of the deposit scheme or with the trust
deed and is in compliance with the rules and provisions of the Act;
c. ensure that the company does not commit any breach of covenants and provisions of
the trust deed;
d. take such reasonable steps as may be necessary to procure a remedy for any breach
of covenants of the trust deed or the terms of invitation of deposits;
e. take steps to call a meeting of the holders of depositors as and when such meeting is
required to be held;
f. carry out such acts as are necessary for the protection of the interest of depositors and
to resolve their grievances.
Maintenance of liquid assets and creation of deposit repayment reserve account:-

Every company as under section 73 and every eligible company shall on or before the 30th
day of April of each year deposit the sum of 15 % as specified with any scheduled bank and
the amount so deposited shall not be utilised for any purpose other than for the repayment of
deposits:
Registers of deposits:-
32
(1) Every company accepting deposits shall maintain at its registered office one or more
separate registers for deposits accepted or renewed, in which there shall be entered
separately in the case of each depositor
(2) The entries specified shall be made within seven days from the date of issuance of
the receipt duly authenticated by a director or secretary of the company or by any other
officer authorised by the Board for this purpose.
(3) The register referred above shall be preserved in good order for a period of not less
than eight years from the financial year in which the latest entry is made in the register.
a) Return of deposits to be filed with the Registrar.-
b) Every company to which these rules apply, shall on or before the 30th day of June, of
every year, file with the Registrar, a return in Form DPT-3 along with the fee as
provided in Companies (Registration Offices and Fees) Rules, 2014 and furnish the
information contained therein as on the 31st day of March of that year duly audited by
the auditor of the company.
SECTION 74
Repayment of deposits accepted under the previous act

Where, in respect of deposits accepted under the previous Act, any amount of deposit or
interest is due on the commencement of the new Act or becomes due later, the company shall
file with the Registrar in Form DPT-4 within three months from the commencement of the
Act or from the date the payments are due, a statement of all deposits accepted by the
company and sums remaining unpaid and the interest due thereon and the arrangements made
for repayment.
The company shall repay the deposits within one year from the date of such
commencement or from the date on which the payments are due.
Tribunal has power to hear such defaults—

On the application by the company in respect of inability to make repayment, the Tribunal after
considering the financial position of the company and other matters, allow further time as
considered reasonable to the company to repay the deposit.
Failure of the company to pay the dues—

Where a company fails to repay the deposits by the time extended by the Tribunal, in addition to
the amounts payable, the company shall be punishable with fine of one crore rupees which
may extend to ten crore rupees and every officer of the company, who is in default shall be
punishable with imprisonment up to seven years or fine of twenty-five lakh rupees which may
extend to two crore rupees or with both.
Section 135 - CSR as per Companies Act 2013
The CSR provisions are covered under the Section 135 and Schedule VII of the Companies
Act, 2013.
33
As per the provisions of this section, a Company having

 Net-worth of Rs.500 crore or more, or
 Turnover of Rs.1000 crore or more or
 net profit of Rs.5 crore or more
in previous financial year, should:
 spend at least 2% of the average net profits of three immediately preceding years on
CSR activities
In case the company do not fully spend the funds of In case the company spends in
CSR excess of CSR requirement
Company must disclose the reasons for non-spending companies which spend any
in their annual report. amount in excess of their CSR
obligation in a financial year
Any unspent annual CSR funds must be transferred to can set off the excess amount
one of the funds under Schedule 7 of the Act (e.g.,
towards their CSR obligations in
PM Relief Fund) within six months of the financial year.
subsequent financial years
However, if the CSR funds are committed to certain
ongoing projects, then the unspent funds will have to be
transferred to an Unspent CSR Account within 30 days
of the end of the financial year, and spent within three
years. Any funds remaining unspent after three years
will have to be transferred to one of the funds under
Schedule 7 of the Act.
If a company is in default in complying with these

provisions,
o the company shall be liable to a penalty of twice

the amount required to be transferred by the
company to the Fund specified in Schedule VII or
the Unspent Corporate Social Responsibility
Account, as the case may be, or one crore
rupees, whichever is less, and
o every officer of the company who is in default
shall be liable to a penalty of one-tenth of the
amount required to be transferred by the
company to such Fund specified in Schedule VII,
or the Unspent Corporate Social Responsibility
Account, as the case may be, or two lakh
rupees, whichever is less.
 Constitute a CSR Committee (consisting of 3 or more directors of which at least 1 is

independent director) and
Note - Where the amount to be spent by a company on CSR activity does not exceed
Rs.50 lakh, the requirement of constitution of the CSR Committee shall not be
34
applicable and the functions of such Committee will be carried out by the Board of
Directors
Functions of the CSR Committee shall,—

 formulate and recommend to the Board, a CSR Policy which shall indicate the activities
to be undertaken by the company in areas or subject, specified in Schedule VII:
(i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortlity and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister's National Relief Fund or any other fund set up
by the Central Government or the State Governments for socio-economic
development and relief and funds for the welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women;
(x) such other matters as may be prescribed
 recommend the amount of expenditure to be incurred on the activities referred above

 monitor the CSR Policy of the company from time to time.
Directors in a Company (Section 149)
1. Number of Directors:
Maximum 15 directors SEBI (LODR)
Regulations, 2015
( company may appoint more than 15 directors after passing a special resolution)
At least 6 directors on
the board of top 1000
One Person listed entities (with
Public Company - Private Company
Company - effect from April 1,
Minimum 3 - Minimum 2
Minimum 1 2019) and the top 2000
directors directors listed entities (with
director effect from April 1,
2020)
 Every company shall have at least one director who stays in India for a total period of
not less than 182 days during the financial year
 A listed company, may upon notice by at least 1000 small shareholders or 1/10th of
the total number of such shareholders, whichever is lower, have a small
shareholders’ director elected by the small shareholders.
35
“Small shareholder” means a shareholder holding shares of nominal value of not more
than Rs.20,000 or such other sum as may be prescribed.
2. Independent Directors related guidelines

Particulars Details
Minimum no.  Every listed public company shall have at least one-third (with fraction
of rounded-off as one) of the total number of directors as independent
independent directors
directors  the Central Government may prescribe the minimum number of independent
directors in case of any class or classes of public companies:
o at least 2 independent directors in case of public company having
paid up capital of at least Rs.10 crore or turnover of at least Rs.100
crore or have aggregate outstanding loans/debentures/deposits of
more than Rs.50 crore
SEBI (LODR) regulations, also state that where the listed company has
outstanding Superior Rights equity shares, atleast half of the board of directors
shall comprise of independent directors.
Remuneration  They may receive remuneration by way of sitting fee, reimbursement of

expenses incurred for participation in the Board and other committee
meetings and profit related commission as may be approved by the
members as provided under section 197 (5) of the Act.
 An independent director shall not be entitled to any stock option.
Tenure  a term up to 5 consecutive years on the Board of a company, but shall be
eligible for reappointment on passing of a special resolution by the
company and disclosure of such appointment in the Board's report
 No independent director shall hold office for more than two consecutive
terms, but such independent director shall be eligible for appointment after
the expiration of 3 years of ceasing to become an independent director.
Liability  An independent director and a non-executive director except the promoter
or key managerial personnel, shall be held liable only in respect of such
acts of omission or commission by a company which had occurred with
their knowledge, attributable through Board processes and with their
consent or connivance or where they had not acted diligently.
1. Women Directors related guidelines

Companies Act, 2013 SEBI (LODR) Regulations, 2015
At least one woman director to be appointed by:  Top 500 listed entities should
 Every listed company have at least one
 Every other public company having paid up independent woman
share capital of Rs.100 crore or more or director by April 1, 2019.
turnover of Rs.300 crore or more as on the  Top 1000 listed entities should
last date of latest audited financial have at least one independent
statements, woman director by April 1,
any intermittent vacancy of a woman director to be 2020.
filled up by the BoD within 3 months from the date of
vacancy or before immediate next board meeting,
whichever is later
2. Maximum Directorships
36
Companies Act, 2013 (Section 165) SEBI (LODR) Regulations, 2015
 20 – maximum total directorships Listed entities: a director should not hold

(including any alternate directorship) directorship position in more than
 10 - Number of directorships in public  eight listed entities by April 01, 2019
companies (including private companies  seven listed entities by April 01, 2020
that are either holding or subsidiary Also, a person shall not serve as an
company of a public company) independent director in more than seven
listed entities
Further the members of a company may If a person is a MD/WTD in a listed co. then he
restrict abovementioned limit by passing a can be independent director in max. 3 listed
special resolution companies
Director Identification Number (DIN)
153-Application for DIN to Central Govt. with applicable fees
154- Allotment of DIN by Central Govt. within one month of

receipt of application
155- Prohibition to obtain more than one DIN
156-Director to initmate DIN, within one month of receipt

of DIN, to all companies where they are Director in case of
default, penalty
= Rs.25000 and
continuing
157-Company to inform DIN within 15 days to Registrar default –
Rs.100/day to
max Rs.1 lakh
Meetings of the Board (Sec 173)
37
Quorum for the Meeting (Sec 174)
 Quorum for meeting shall be 1/3rd of total strength or 2 directors whichever is higher.
 Participation of directors through video conferencing or other audio visual means shall
also be counted for the purpose of quorum with exception to the meetings with the
following agenda Note – This provision
o Approval of annual financial statements; relaxed for period March
2020-June 2021 due to
o Approval of Board’s Report;
COVID-19
o Approval of prospectus;
o Audit Committee Meetings for consideration of financial statement including
consolidated financial statement, to be approved by the Board;
o Approval of matters relating to amalgamation, merger, demerger, acquisition
and takeover.
Committees of the Board
38
Nomination and
Stakeholders
Audit Committee Remuneration
Reationship Committee
Committee
•Audit Committee is the •Helps in the preparations •To consider and resolve
gatekeeper of financial relating to the election of the grievances of security
information that members of the Board of holders of the company.
shareholders and the Directors
investing public rely upon •Responsibilities related to •to be made by
in order to make informed the conditions of
investment decisions. •A company with more than
employment and one thousand
remuneration of senior
management shareholders, debenture-
•to be made by holders, deposit-holders
•every listed public company and any other security
•public company having paid •to be made by holders at any time during
up capital of at least Rs.10 •every listed public company a financial year
crore or turnover of at least •public company having paid
Rs.100 crore or have up capital of at least Rs.10 •Composition -
aggregate outstanding crore or turnover of at least Chairperson who shall be a
loans/debentures/deposits Rs.100 crore or have nonexecutive director,
of more than Rs.50 crore aggregate outstanding such other members as
loans/debentures/deposits may be decided by the
•Composition - in. 3 of more than Rs.50 crore Board
directors with independent
directors forming majority, •Composition - three or
more than half (including more non-executive
Chairperson) shall be directors out of which at
persons with ability to read least one-half shall be
and understand financial independent directors
statements
NCLT and NCLAT
 NCLT was conceptualized based by Eradi committee

 The “Tribunal” or NCLT is a quasi-judicial authority created under the Companies
Act, 2013 to handle corporate civil disputes arising under the Act.
 It is an entity that has powers and procedures like those vested in a court of law or
judge.
 “Appellate Tribunal” or NCLAT is an authority provided for
dealing with appeals arising out of the decisions of the
NCLT. The NCLAT reviews the decisions of the NCLT and
has power to set aside, modify or confirm it
 The decisions of NCLAT can further be challenged in the
Supreme Court.
Note - If a mistake in the order passed by NCLT has been
brought to its notice by the parties, NCLT may amend any order
passed by it at any time within 2 years from the date of the order,
39
with a view to rectifying any mistake apparent from the record; provided no appeal has been filed
against order of NCLT.
 Provisions for constitution of NCLT and NCLAT were notified on 1st June 2016.
 Following the constitution of NCLT and NCLAT, the Company law Board (CLB) was
dissolved
 As of April 2021, NCLT has 1 principal bench at New Delhi and 15 more benches all
over the country
Note - The Central Government shall, by notification, establish such number of benches of the Tribunal,
as it may consider necessary
Constitution of NCLT (Sec 408) and NCLAT (Sec 410)
NCLT NCLAT
Head - President Head - Chairperson
two classes of members - Maximum 11 members

Judicial and Technical (Judicial and Technical)
for hearing appeals against

for discharge of its powers
orders of NCLT or of National
and functions under
Financial Reporting Authority
Companies Act, 2013
(NFRA)
Need for NCLT
 Before constitution of NCLT and NCLAT, various company matters fell under the
jurisdiction of multiple bodies leading to multiplicity of proceedings and delays.
 The NCLT consolidated the various forums and provided a one stop shop for
adjudication of company matters:
40
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Study Notes

Companies Act, 2013

 The Companies Act 2013 is an Act of the Parliament of India

SALIENT FEATURES OF THE ACT

 Companies incorporated under this Act or any previous company law

Understanding Key Concepts/terms

 a promoter of the company or its holding, subsidiary or associate company and

Key managerial personnel (KMP) include:

Annual General Meeting

 It is an interaction between the management and the shareholders of the Company.

Extraordinary General Meeting

 An Extraordinary General Meeting (an EGM) can be defined as a meeting of

Special and Ordinary Resolution

An ordinary resolution is referring to a resolution, passed by the members of the

Consent of At least 51% members should be in At least 75% members should be in

members favor of the motion. favor of the motion.

Registration A copy of OR should be filed with A copy of SR must be filed with

Business Ordinary business or special Special business.

Majority Rule and Minority Rights

o Benefit and Justification

 Avoid the multiplicity of suits

 Ultra Virus Act

 Resolution Requiring Special Majority

 Prevention of Oppression and Mismanagement

Private One person Small

Private  Restricts the right to transfer shares

Note – subsidiary of a public company will be deemed to be a public company too

 These are the companies formed for promoting charitable objects of

 The profits accrued or any other income obtained is used in promotion of

Foreign A company or body corporate incorporated outside India which –

Section 9 Characteristic Features of a Company

1. Incorporated association - A company is formed and registered by complying with the

7. Transferable shares - Shares of a company are movable property and can be

Lifting or Piercing of corporate veil

Circumstances in which lifting of corporate veil is lifted

Section 3 Formation of a company

Company is formed for lawful purpose.

 Public Company to be formed by 7 or more person & maximum unlimited

A company by subscribing its name to a memorandum of association and by complying with

Section 4 Memorandum of Association

 Take action to strike off the company’s name from Register of

Section 5 Articles of Association

Section 7- Incorporation of company

Section 8- Formation of companies with charitable objects, etc.

 The Registrar of Companies may allow person or an association of persons to be

Section 10A- Commencement of business, etc.

 A company incorporated after the commencement of the Companies (Amendment)

Section 12- Registered office of company

Section 13 Alteration of Memorandum

 Alteration of Capital clause

 Alteration of Name Clause

 Alteration of Situation/ Registered Office Clause

 Alteration of Object Clause –

Section 14 Alteration of Articles

Section 16 Rectification of name of company

It has come to the knowledge of the

If in the opinion of the Central Government

 Notice of change to the registrar:

Section 17 Copies of memorandum, articles, etc., to be given to members

 Within 7 days of request

Section 18- Conversion of companies already registered.

Section 23 Public offer and Private Placement

 Issue of securities by Public Company: -