CHAPTER 15- COMPANIES ACT, 2013

Introduction: The Companies Act, 2013 was enacted to consolidate and amend the law relating to
the companies. Due to changes in the national and international economic environment and to
facilitate expansion and growth of our economy, the Central Government decided to replace the
Companies Act, 1956 with new legislation. - The Companies Act, 2013 contains 470 sections and seven
schedules. The entire Act has been divided into 29 chapters. - It received the assent of the President
on 29th August, 2013 and came into force on 12th September,2013.(98 sections). - A substantial part
of this Act is in the form of Companies Rules.

Practical Application Areas:

Company Law is one area of law that has diverse applications in various legal jobs and areas of
expertise. From corporate lawyers to directors of companies, many people need to have a grip on
company law.
As companies have become the primary vehicles of wealth creation and organization of economic
activities in our society, the complex body of law that governs these entities is a critical factor in the
success of our country and the welfare of the people. The experts in this law play a very important
role in corporate governance, dispute resolution and efficient management of economic value
generation in the world.
Wherever you are working, knowledge of company law is appreciated and useful everywhere.
By learning the sections of the Companies Act, 2013, you learn very little about the actual work you
have to do eventually. For example, can you perform a basic task like drafting board resolutions? Do
you know what exact steps to take after board resolutions are approved in order to comply with the
law and various regulations that apply?
Let’s say your company’s managing director wants to take a loan from the company. Do you know
what to do when you get such a mandate? How about how to handle related party transactions and
the exact steps involved?
So through this chapter you’ll learn the most common applications of company law and what one
needs to do in day-to-day work as far as company law is concerned.

Important Concepts & Provisions: :

1. Company: 'Company' means a company incorporated under the Companies Act, 2013 or any
previous Companies Act.
Example: Reliance Industries Limited incorporated in 1973, Tata Steel, Limited
incorporated in 1907, Infosys Limited incorporated in 1981.

Types of Companies:
1. Companies on the Basis of Liabilities
When we look at the liabilities of members, companies can be limited by shares, limited by guarantee
or simply unlimited.

a) Companies Limited by Shares

Sometimes, shareholders of some companies might not pay the entire value of their shares in one go.
In these companies, the liabilities of members is limited to the extent of the amount not paid by them
on their shares.
This means that in case of winding up, members will be liable only until they pay the remaining amount
of their shares.

b) Companies Limited by Guarantee

In some companies, the memorandum of association mentions amounts of money that some
members guarantee to pay.
In case of winding up, they will be liable only to pay only the amount so guaranteed. The company or
its creditors cannot compel them to pay any more money.

c) Unlimited Companies
Unlimited companies have no limits on their members’ liabilities. Hence, the company can use all
personal assets of shareholders to meet its debts while winding up. Their liabilities will extend to the
company’s entire debt.

2. Companies on the basis of members

a) One Person Companies (OPC)
These kinds of companies have only their sole shareholder. They are separate from sole
proprietorships because OPCs are legal entities distinct from their sole members. Unlike other
companies, OPCs don’t need to have any minimum share capital. one member as

b) Private Companies
Private companies are those whose articles of association restrict free transferability of shares. In
terms of members, private companies need to have a minimum of 2 and a maximum of 200. These
members include present and former employees who also hold shares.

c) Public Companies
In contrast to private companies, public companies allow their members to freely transfer their shares
to others. Secondly, they need to have a minimum of 7 members, but the maximum number of
members they can have is unlimited.

3. Companies on the basis of Control or Holding

In terms of control, there are two types of companies.

a) Holding and Subsidiary Companies

In some cases, a company’s shares might be held fully or partly by another company. Here, the
company owning these shares becomes the holding or parent company. Likewise, the company whose
shares the parent company owns becomes its subsidiary company.
Holding companies exercise control over their subsidiaries by dictating the composition of their board
of directors. Furthermore, parent companies also exercise control by owning more than 50% of their
subsidiary companies’ shares.

b) Associate Companies
Associate companies are those in which other companies have significant influence. This “significant
influence” amounts to ownership of at least 20% shares of the associate company.
The other company’s control can exist in terms of the associate company’s business decisions under
an agreement. Associate companies can also exist under joint venture agreements.

4. Companies in terms of Access to Capital

When we consider the access a company has to capital, companies may be either listed or unlisted.
Listed companies have their securities listed on stock exchanges. This means people can freely buy
their securities. Hence, only public companies can be listed, and not private companies.
Unlisted companies, on the other hand, do not list their securities on stock exchanges. Both, public,
as well as private companies, can come under this category.

5. Other Types of Companies

a) Government Companies
Government companies are those in which more than 50% of share capital is held by either the central
government, or by one or more state governments, or jointly by the central government and one or
more state governments.

b) Foreign Companies
Foreign companies are incorporated outside India. They also conduct business in India using a place
of business either by themselves or with some other company.

c) Charitable Companies (Section 8)

Certain companies have charitable purposes as their objectives. These companies are called Section 8
companies because they are registered under Section 8 of Companies Act, 2013.
Charitable companies have the promotion of arts, science, culture, religion, education, sports, trade,
commerce, etc. as their objectives. Since they do not earn profits, they also do not pay any dividend
to their members.

d) Dormant Companies
These companies are generally formed for future projects. They do not have significant accounting
transactions and do not have to carry out all compliances of regular companies.

e) Nidhi Companies
A Nidhi company functions to promote the habits of thrift and saving amongst its members. It receives
deposits from members and uses them for their own benefits.
f) Public Financial Institutions
Life Insurance Corporation, Unit Trust of India and other such companies are treated as public financial
institutions. They are essentially government companies that conduct functions of public financing.

2. Resolutions: A company resolution is a formal written statement that documents

decisions made by:
 the board of directors; or
 shareholders of the company.

Three forms of resolutions are available: ordinary resolution, special resolution, and Resolutions
requiring special Notice as follows-
1. Ordinary Resolution: vote cast in favour of the resolution exceeds votes cast against it
2. Special Resolution: votes, cast in favour of the resolution are not less than 3 times the
votes cast against the resolution
3. Resolution requiring special notice:
o By members holding not less than 1% of total voting power or holding shares on which an aggregate
sum of not less than Rs 5,00,000 is paid up.
o At Least 14 days before meeting
o Company must circulate it before 7 clear days if not possible give an advertisement

3. Share: is a share in the share capital of a company and includes stock. The share capital of a
company is divided into small units having a certain face value. Each such unit is termed as share. A
share thus represents such proportion of the interest of the shareholders as the amount paid up
thereon bears to the total capital payable to the company. It is a measure of the interest in the
company’s assets to which a person holding a share is entitled.
Values of Share:
1. Face value- Face value is the value of a company which is listed in its books and share certificate.
It is the nominal value or par value of the share at the time of issuing. The face value of a share
does not fluctuate, it is fixed. The formula is-
Face Value = Equity share capital / Number of shares outstanding

2. Book Value- book value of a company is the total value of the company’s assets that
shareholders will receive in case the company gets liquidated. Fluctuation in Book Value is
infrequent and changes annually, as per business performance. Book Value can be helpful in
determining whether the company’s stock is overvalued, undervalued or fairly valued. Formulas
are-
(i) Book Value = Total Assets – (Total Liabilities – Current Liabilities)
(ii) Book Value per share = Face Value + Reserve per share

3. Market Value- Market value per share is the current value at which the stock is trading in the
market. Formula is-
Market Value = Current Stock Price * Number of shares outstanding

The shares in a company shall be movable property transferable in the manner provided by the articles
of the company.
Every share in a company having a share capital shall be distinguished by its distinctive number. This is
not required for shares held by beneficial owner of shares, which are in the record of a depository.
A certificate, issued under the common seal of the company, specifying the shares held by any person,
shall be prima facie evidence of the title of the person to such shares.
Where a share is held in depository form, the record of the depository is the prima facie evidence of
the interest of the beneficial owner.

4. Stock: If a company undertakes to aggregate the fully paid up shares of various members as
per their requests and merge those shares into one fund, then such fund is called ‘stock’. In simple
words we can say that ‘stock’ is a collection or bundle of fully paid-up shares.

5. Depository- it is a place where financial securities e.g. shares, debentures etc. are
held in dematerialised form. It is like a bank of shares. It holds the securities in an
electronic form as book-entry. Organizations become members of depositories and
keep electronic records of all their issued equity and debt securities with the
depositories. Depository interacts with its clients or investors through its agents, called
Depository Participants normally known as DPs (share broker or bank doing share broking).
For any investor or client, to avail the services provided by the Depository, has to open a
Depository account, known as Demat A/c, with any of the DPs.
There are two main types of depositories in India -CDSL and NSDL. NSDL works
for NSE and CDSL works for BSE

6. Demat account- You can easily buy or sell shares of different companies using your
Demat account.
 7. Share Capital of the Company:
Share Capital is the amount of money that a company receives by the sale of its shares. The company
uses this amount of money as the capital of the company to commence business and gain profits in
its business. This capital is also used to acquire movable and immovable properties that are required
for running the business.
The Usage Of Share- Capital Under Companies Act
The Share-Capital under Companies Act, 2013 is significantly used in memorandum of association in
which a company limited by shares or by guarantee must state in its memorandum of association, the
amount of share-capital and the division thereof into shares of fixed amount.

It is used in Articles of Association when a company with unlimited liability and having share capital
must state its authorized capital in its articles of association.

Finally, it is used in Prospectus.The amount of capital and the number of shares in which the capital is
dividend must be stated in the prospectus, the statement in lieu of the prospectus and the annual
return of the company.
Forms of Share Capital:
I. Authorized, Nominal or Registered capital
The amount of company with which registration of a company could take place, such capital is
authorized capital. It is the amount of total value of shares that the company is authorized to offer for
subscription.
II. Issued Capital
It is authorized capital which is actually issued to the public for sale. Generally, a company does not
issue the shares for its total authorized capital at one time. It rather invites front eh public for a part
of its capital and the subscription for the remaining capital is called for as and when required.
III. Subscribed Capital
Subscribed Capital is the part of issued Capital which is generally accepted and willfully taken by the
public. If the public accepts the total issued capital, then the issued capital shall be equal to the
Subscribed Capital.
IV. Paid up Capital
The Paid-up Capital refers to the amount that has been received by the company through the issue of
shares to the shareholders. Simply, The amount actually paid by the shareholders is known as Paid-up
Capital.
V. Called-Up Capital:
Generally, the shareholders pay the price of the shares by installments, viz., application, allotment,
First call, Final call etc. Therefore, the portion of the face value of the shares which the shareholders
are called upon to pay or the company has demanded to pay is called Called-up capital.
VI. Uncalled Capital:
 The unpaid portion of the subscribed capital is called Uncalled Capital. In other words, it is the
remainder of the issued Capital which has not been called. However, the company may call this
amount at any time but that must be subject to the terms of issue of shares.
VII. Reserve Capital:
Reserve Capital is that part of uncalled capital of a company which can be called only in the event of
its winding-up. It is available only for the creditors on the winding-up of the company.

8. Kinds of Share Capital

The Share-Capital of a company limited by share is of two kinds.

A. Equity share Capital:

Every company requires substantial working capital to keep their business smooth. This
capital is used when a company faces financial restrictions to keep its regular operations
active. More often, companies use their equity shares to raise the required capital known as
equity share capital. The share Capital which is not limited by shares is called an Equity Share
Capital.
Equity share capital is-
i. with voting rights; or
ii. with differential rights as to dividend, voting or otherwise,
Example:
Tata Motors in 2008 introduced equity shares with differential voting rights called ‘A’ equity shares in
its rights issue. In the issue, every 10 ‘A’ equity shares carried only one voting right but would get 5
percentage points more dividend than that declared on each of the ordinary shares. Since ‘A’ equity
share did not carry the similar voting rights, it was being traded at discount to other common shares
having full voting. Other companies which have issued equity shares with differential voting rights
(popularly called DVRs) are Future Retail, Jain Irrigation among others.

B. Preference Share Capital:

Preference shares are the shares which promise the holder a fixed dividend, whose payment takes
priority over that of ordinary share dividends. Capital raised by the issue of preference shares is called
preference share capital. A preferential Share-capital is that part of the capital of a company that
carries preferential rights to be paid a fixed amount and on a winding up, or upon repayment of capital,
to be repaid the capital paid up.

(i) Preferential right as to payment of dividend

- In a case, where a dividend is declared by the company, the Preference shareholders shall have a
preferential right to payment of dividend.
- Such preferential right as to payment of dividend may be —
a) with respect to a fixed rate; or
b) with respect to a fixed amount; or
c) free of income tax; or
d) subject to income tax.

(ii) Preferential right as to repayment of capital

- In the case of winding up of the company or of repayment of capital, the preference shareholders
shall have a preferential right to the repayment of the amount of share capital paid up.
- Share capital shall be deemed to be preference share capital whether or not it is entitled to either or
both of the following rights:
a) Participation in surplus profits: Right to participate with the equity share capital, in the surplus
profits in the case of payment of dividend.
b) Participation in surplus assets: Right to participate with the equity share capital, in any surplus which
may remain after the entire share capital is repaid in the case of a winding up.

Redemption of Preference Shares:

Companies limited by shares can’t issue any preference shares which are irredeemable.
A company limited by shares may, if so authorized by its articles, issue preference shares which are
liable to be redeemed within a period not exceeding twenty years from the date of their issue subject
to such conditions as may be prescribed:
A Company may issue preference shares for a period exceeding twenty years for infrastructure
projects.

Sources of Redemption There are three sources of redemption of preference shares. They are-
 Redemption out of the fresh issue of shares
 Redemption out of Profits
 Redemption partly out of the fresh issue and partly out of profits
Condition for Redemption of Preference Shares:
 Fully paid-up preference shares can only be redeemed.
 A Company may redeem its preference shares:-
(a) at a fixed time or on the happening of a particular event;
(b) any time at the company’s option; or
(c) any time at the shareholder’s option.

9. Incorporation of Company:

General Legal Knowledge:

 Promoter: A person who has been named as such in Annual return and prospectus. A person who
controls affairs of the company either directly or indirectly as a shareholder, director or otherwise
A person in accordance with whose instructions the BODs will act. He is required during the
promotion, registration, floatation and winding up of the company. He is responsible for raising
capital from various sources and entering into the first agreements for the start of a business and
incorporation of a company.

MEMORANDUM OF ASSOCIATION
Memorandum of Association is the fundamental condition upon which alone is allowed to
incorporate.

Printing and Signing of Memorandum [Sections 3 & 4]: The memorandum of association must be
a. Printed,
b. Divided into paragraphs, numbered consecutively and Signed by each subscriber (7 in the case of a
public company; 2 in the case of a private company and 1 in the case of OPC) in the presence of at
least one witness
who shall attest the signatures of the subscribers.

Contents of Memorandum: It contains the following clauses:-

Name Clause
Situation or Registered Office Clause
Objects Clause
Liability Clause
Capital Clause (only in the case of a company having a share capital)
Association Clause and Subscription Clause
Succession Clause (only in the case of OPC)
ARTICLES OF ASSOCIATION
The articles of a company are its bye — laws or rules and regulations that govern the management of
its internal affairs and the conduct of its business. The articles of a company are sub—ordinate to and
are controlled by the memorandum of association. The memorandum lays down the scope and
powers of the company and the articles govern the ways in which the objects of the company is to be
carried out.

Contents of Articles of Association: The articles generally deal with the following
1. Classes of shares, their values and the rights attached to each of them.
2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.
3. Directors, their appointment, powers, duties etc.
4. Meetings and minutes, notices etc.
5. Accounts and Audit
6. Appointment of and remuneration to Auditors.
7. Voting, poll, proxy etc.
8. Dividends and Reserves
9. Procedure for winding up.
10. Borrowing powers of Board of Directors and managers etc.
11. Minimum subscription.
12. Rules regarding use and custody of common seal.
13. Rules and regulations regarding conversion of fully paid shares into stock.
14. Lien on shares.

The Process of Incorporation:

Important Information:
SPICe+ Form:- All types of Companies to be incorporated through SPICe+ Form. We have to file the
form SPICe+ which is an integrated Web Form.
SPICe+ consists of two parts:
Part A: Name Reservation for New Companies
Part B: Offering bouquet of services which are as follows:
 Incorporation
 DIN allotment
 Mandatory issue of PAN
 Mandatory issue of TAN
 Mandatory issue of EPFO registration
 Mandatory issue of ESIC registration
 Mandatory issue of Profession Tax registration (Maharashtra)
 Mandatory Opening of Bank Account for the Company and
 Allotment of GSTIN (if so applied for)

Users have flexibility to apply for Part A and Part B together at one go or first apply for Part A, for
Name Approval thereafter Part B, for Incorporation and other services.
Approved Name and related incorporation details as submitted in Part A, would be automatically pre-
filled in all linked forms such as AGILE-PRO, SPICe+ MOA, SPICe+ AOA, URC-1, INC-9 (as per
applicability).
 Once the SPICe+ is filled completely with all relevant details, the same would then have to be
converted into pdf format, for affixing DSCs.
 Registration for EPFO, ESIC and Professional Tax (For state of Maharashtra) is mandatory.
 companies are mandatorily required to apply for opening the company’s Bank account through
the AGILE-PRO linked web form.
Forms Linked To SPICe+
 AGILE-PRO – WEB FORM
 For Registration with GSTN, ESIC, EPFO
 For Professional Tax Registration Number only for Companies incorporated in the State of
Maharashtra.
 For Application for Company’s Bank Account Number
 SPICe+ MOA/SPICe+ AOA – WEB FORM
 eMOA (Electronic Memorandum of Association) which is a Charter of the Company can be filed as
a linked form to SPICe+.
 eAOA (Electronic Articles of Association) which provides all the regulations related to the internal
affairs of the company can be filed as a linked form to SPICe+.
 URC-1 – WEB FORM
 Applicable only in case of Part I Companies, containing details of existing companies.
 INC-9 PDF Generation
 INC-9 pdf is generated/auto populated based on the information filled in Part B SPICe+, users can
download and affix the DSC for uploading.

SPICe+ Procedure to Incorporate A New Company :

1. Obtain DSC
2. Login to MCA Portal, Click on MCA Services, under Company Services click on SPICE+.
3. On Clicking New Application, SPICe+ Part A gets enabled which contains fields relating to Name
Reservation such as Type, Class, Category, Sub-Category, Main division of industrial activity of the
Company along with description of main division and Particulars of the proposed or approved
name.
4. On Successful Completion of Part A, User can click on submit for Name Reservation or Proceed for
Incorporation or Cancel option.
5. If opted for Proceed for Incorporation, Part B gets enabled.
6. Enter the basic details related to the Proposed Company Incorporation such as:
 Company’s Registered or Correspondence Address
 Details of Subscribers and Directors
 Capital Structure of the Company
 Information for Application of PAN and TAN.
7. Users can now download the pdf of SPICe+ Part B for affixing the DSC.
also all the linked forms as per the information filled in SPICe+ Part B gets enabled and available for
the user to fill and submit.
8. After Affixing DSC in SPICe+ Part B and all the linked forms as applicable, users can click on the
upload e-form option and upload SPICe+ Part B along with all the linked forms.
9. On Successful uploading, SRN (Service Request Number) is generated for the user to make
payment.
10. On Successful Payment SRN status will be displayed as Processing.
11. After the due verification the ROC will issue the certificate of Incorporation on the email id
provided.

Issue and allotment of Securities:

Note:
 “Securities” include— Shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities, derivatives, units of any collective investment scheme, security receipt,
mutual fund unit, Government securities, etc.
Various modes of issue of securities by a public company or a private company are depicted
in the following diagram:
So to conclude the above diagram see the following table:
1. IPO: A company can change itself from a privately-held body to a publicly-traded entity through
the process of Initial Public Offering (IPO). Typically, companies offer IPO to raise money and get
access to liquidity by offering their stocks/shares to the public. Companies have to abide by the
following IPO process in India -
Step 1: Hiring Of An Underwriter Or Investment Bank
To start the initial public offering process, the company will take the help of financial experts, like
investment banks and underwriters.
Note:
 How underwriting works?
The underwriter contacts large prospective buyers of stock, such as mutual funds and insurance
companies who have large sums of money to invest. The underwriter takes the pulse of prospective
buyers and then recommends an IPO price to the firm. This is the price at which the shares will be
sold.The underwriter usually provides a guarantee to the firm to sell a specific quantity of stock during
the IPO process. Should the underwriter fail to convince prospective investors to buy this many shares,
it must buy the surplus itself. If the underwriter ends up with a great quantity of stock, which it was
forced to buy from the issuing company, it will sell these shares in the open market.
Step 2: Registration for IPO
The investment bank and the company prepare a registration statement and a draft prospectus,
Known as the red herring prospectus (RHP), All businesses have to submit the red herring prospectus.

Note:
 Prospectus:
any document named as prospectus and includes Red herring prospectus, Shelf prospectus, Any
notice, circular, advertisement or any other document inviting offers from the public for subscription
and purchase of shares of the company.

When Prospectus is not required- Right issue or further issue, Private placement, Conversion of loan
or debenture or PSC, Bonus issue, ESOPs, Issued to QIBs, Application for underwriting, Listed company
– similar issue as earlier

Contents of Prospectus:
 Definitions: It contains the definitions of the industry-specific terms.
 Earlier public issue & utilization & Expert statement
 Risk Factors: This section discloses the possibilities that could impact a company’s finances.
 Use of Proceeds: This section discusses how the money raised from investors will be used.
 Industry Description: This section details the working of the company in the overall industry
segment. For instance, if the company belongs to the IT segment, the section will provide forecasts
and predictions about the segment.
 Price & quantum of shares being offered.
 Business Description: This section will detail the core business activities of the company.
 Management: This section provides information about key management personnel.
 Financial Description: This section comprises financial statements along with the auditor's report.
 Legal and Other Information: This section details the litigation against the company along with
miscellaneous information.

 Shelf Prospectus:
In case of similar issues of a listed company which is valid for 12 months from the date of opening of
subscription list for first offer. Information memorandum has to be filed explaining the changes during
the period.

 Red herring Prospectus(RHP):

It is the most important document that a retail investor has access to and can use it to evaluate the
offer. The document details all the information about the business, with the exception of price or
quantum of shares being offered.

Step 3: Verification by SEBI:

Market regulator, SEBI then verifies the disclosure of facts by the company. If the application is
approved, the company can announce a date for its IPO.
Step 4: Application to stock exchange
The company files an application with the stock exchange where it plans to float the initial issue.
Step 5: Creating a Buzz By Roadshows
Before an IPO opens to the public, the company endeavors to create a buzz in the market by
roadshows. Over a period of two weeks, the executives and staff of the company will advertise the
impending IPO across the country. This is basically a marketing and advertising tactic to attract
potential investors. The key highlights of the company are shared with various people, including
business analysts and fund managers. The executives adopt various user-friendly measures, like
Question and Answer sessions, multimedia presentations, group meetings, online virtual roadshows,
and so on.
Step 6: Pricing of IPO
The company can now initiate pricing of IPO either through Fixed Price IPO or by Book Binding
Offering. In the case of Fixed Price Offering, the price of the company’s stocks is announced in advance.
In the event of Book Binding Offering, a price range of 20% is announced, following which investors
can place their bids within the price bracket.
For the bidding process, the investors have to place their bids as per the company’s quoted Lot price,
which is the minimum number of shares to be purchased. Alongside, the company also provides for
IPO Floor Price, which is the minimum bid price and IPO Cap Price, which is the highest bidding price.
The booking is typically open from three to five working days and investors can avail the opportunity
of revising their bids within the stipulated time. After completion of the bidding process, the company
will determine the Cut-Off price, which is the final price at which the issue will be sold.
Step 7: This is the last step before an IPO is launched.
Businesses also ensure that company insiders (internal investors) don’t trade in the IPO. That’s
because:
- It helps stabilize the market without additional selling pressure from insiders.
 It prevents corrupt executives from pawning off overpriced shares at the expense of general
buyers.
 It protects retail investors from a manipulated offer price of the shares.
 It stops the market from being flooded with too many shares that might disturb the natural
demand–supply balance.
Step 8: Allotment of Shares
Once the IPO price is finalised, the company along with the underwriters will determine the number
of shares to be allotted to each investor. In the case of over-subscription, partial allotments will be
made. The IPO stocks are usually allotted to the bidders within 10 working days of the last bidding
date.

Technology: visit the site and get the information about various companies undergoing IPO-
https://www.moneycontrol.com/ipo/ipo-historic-table?classic=true

Issue Of Shares At A Premium

A company may issue shares at a premium when it is able to sell them at a price above par or nominal
value, irrespective of the fact whether the shares are listed on Stock Exchange or not. The rate of
premium will be decided by the Board of Directors of a Company. The premium cannot be treated as
profit and as such the amount of premium is not available for distribution as dividend. The amount of
premium, whether received in cash or in kind, must be kept in a separate account, known as the
"Securities Premium Account".

Issue Of Shares At A Discount

a company prohibited to issue shares at discount except in the case of issue of sweat equity
shares. Any share issued by a company at a discount shall be void.
However, a company may issue shares at a discount to its creditors when its debt is
converted into shares in pursuance of any debt restructuring scheme.

2. Follow on Public Offer (FPO)

Follow on Public Offer (FPO) is a process by which a listed company on the stock exchange platform
can raise capital by offering new shares to the investors or the existing shareholders.
FPO is used by companies to diversify their equity base.
Let's understand this by a simple example. Suppose, you have already raised fresh capital through an
IPO, and you wish to raise some more. In this situation, you can issue new shares to the investors or
to your existing shareholders to raise your capital.
However, this time you do not need to list your company as it is already listed on the stock exchange
platform through IPO and this is the function of FPO as your capital has been expanded or diversified
without undergoing the process of getting listed again due to the previous IPO.
The only difference between FPO and IPO is that an FPO is brought out by a company that is already
listed.

3. Offer for Sale (OFS)

Offer For Sale does not raise any fresh capital. In this case, an existing shareholder dilutes their stakes
through the primary market.
An OFS solely ends up in a transfer of ownership from one shareowner to a different one and doesn't
increase the share capital of the corporation.
Some corporations mix their initial public offering (IPO) with OFS to provide a partial exit to promoters
and non-public equity (PE) investors.

4. Private Placement
Private placement refers to the sale of securities to a small number of private investors to raise capital.
Private placement is done through the issue of a private placement offer letter. These private investors
include mutual fund investors, banks, insurance companies etc. The securities under PP can be issued
/offered only to a select group of persons who have been identified by the Board. The offer of
securities or invitation to subscribe securities, shall be made to not more than 50 persons in a single
offer or not more than 200 persons in the aggregate in a financial year. The person to whom the offer
is made can either accept or reject the offer. Issuer Company shall allot its securities within 60 days
from the date of receipt of the application money.

Note:
Private Placement Offer Letter: A Private Placement Offer Letter is the document that a Company
issues while making a Private Placement Offer to a specified group of persons.
Contents of Private Placement Offer Letter- Information related to the Company, Particulars of the
Offer, Disclosures, Information about the Financial Position of the Company, Required Declaration by
Director, Date and Place, attachments like Copies of resolutions etc.

5. Right Issue:
A rights issue is a primary market offer to the existing shareholders to buy additional shares of the
company on a pro-rata basis within a specified date at a discounted price than the current market
price.
It is important to note that the rights issue offer is an invitation that provides an opportunity for
existing shareholders to increase their shareholding. It is a right that a shareholder may or may not
choose to exercise and not an obligation to buy the shares.
The most common reasons for a company to prefer rights issues over other public offerings is as
follows.
1. To reduce the debt-equity ratio of the company.
2. Cash strapped companies in need of capital and not wanting to increase the debt burden by taking
any loans.
3. For company expansion, acquisition, takeovers or other general corporate purposes.
Technology: visit the site and get the information about various companies offering rights
issue- https://www.moneycontrol.com/stocks/marketinfo/rights/index.php
6. Bonus Issue: A bonus share is a free additional share which is given to the shareholders as a
bonus. These are additional shares given to shareholders without any charges. For instance, if a
company notifies 1:2 bonus issue, it means that the shareholders will receive two additional
shares for one existing share. So, a shareholder having 100 existing shares will now have additional
200 shares, taking the total number of shares to 300.
Bonus share issue is a corporate action to revamp the existing cash reserve of a company. It brings the
employed capital of the company in sync with the issued capital. If a company makes profit, it results
in an increase in its employed capital. This surplus is distributed through increasing the number of
issued shares, also known as issued capital.
the company issues bonus shares to its existing shareholders instead of paying dividends. A bonus
share issue does not impact the net assets of a company. It does not involve any cash flow. It simply
means that the number of shares issued by the company – called share capital – has increased.
Bonus share issue impacts the Earning per Share (EPS), which is calculated by dividing a company's net
profit by the number of owned shares. A decrease in EPS, however, is compensated in the long-term
by a corresponding increase in the number of owned shares.
Typically, a bonus share issue underlines the sound financial health of the company. It reflects that
the company is in a strong position to issue additional equities. It means that the company has made
profits.
shareholders don’t have to pay taxes for receiving the bonus shares. However, the gains, if any, made
for trading in the additional shares are categorised as capital gains, and taxed accordingly.

Technology: visit the site and get the information about various companies offering bonus
issue- https://www.financialexpress.com/market/stock-market/bonus-issues/

Other Important concepts:

 Stock Split:
A stock split is when the number of shares gets multiplied. There is a ‘split’ in the number of shares
held. Technically no new shares are being issued by the company. The existing number of shares are
being divided or split.
Example: Say a company announces a stock split in the 1:2 ratio. It means for every 1 share held, it
will become 2 shares, for every 100 shares held, the share count will become 200 shares.
stock splits as well the share price gets halved in the ratio.
Stock split ratio: 1:2
Stock price before stock split: Rs 100
Total share count before stock split: 100 shares
After stock split
Share count: 200 shares
Stock price: (Rs100*100shares)/200 shares
In the stock split, since the same shares are being split in a certain ratio, the face value also gets split
in the same ratio. If the face value was Rs 10 before stock split, it will become Rs 5 per share after the
split.
a company may announce a stock split when it wants to reduce the price of shares and make it more
affordable for investors. This is also done to increase the liquidity of the shares.

Technology: visit the site and get the information about various companies offering stock
split- https://economictimes.indiatimes.com/marketstats/companyid-0,duration-U,filtertype-
latest,marketactiontype-splits,marketcap-All,pageno-1,pid-21,sortby-xsDateStr,sortorder-asc,year-
0.cms
 Sweat equity shares & Employee Stock Option Scheme:
A company can issue its shares to the employees. This provides an incentive for the employees to
contribute better to the company and motivate them. It also helps to retain the employees in the
company for the long term. By issuing the shares, the company can also increase its capital.
Employees Stock Option Scheme (ESOP) and Sweat Equity Shares are two methods of issuing shares
by a company to its employees.
ESOP SWEAT EQUITY SHARES

ESOPs are given in the nature of Incentive and Sweat Equity Shares are issued as consideration for
retention plans that can be issued to creation or transfer of IPRs to the company or as other
employees and officers. ESOPs cannot be value addition; these can be issued to employees, Officers
issued to Promoter and Directors of the Company.

Employees are required to pay the The consideration can be in cash, IPR or non-cash.
predetermined price of the shares at the time
of exercise in cash.

The company decides the lock-in period. The lock-in period is three years as per the Companies
(Share Capital and Debentures) Rules.

The Company has the freedom to determine shares to be issued at a value determined by a registered
the exercise price. The issue price shall not be valuer as the fair price.
less than the intrinsic value of the shares.

The company can raise any amount of paid-up There is a Restriction on the limit of increasing paid-up
share capital by issuance of ESOP’s. share capital through issue of sweat equity shares

 Buyback of shares: a buyback happens when a company buys its own fully paid up shares from
the market at a premium price. Once taken back, these shares are extinguished by the company.

Purposes -
1. Unused cash: If the company has a huge cash reserve with not many future projects to invest in
and if the company thinks the market price of its shares is undervalued, they can buy back shares
as a reward for their shareholders.
2. Tax Gains: The companies prefer buyback to reward their investors instead of distributing cash
dividends because dividends are taxed at a higher rate than capital gains. At present, short-term
capital gains are taxed at 10% and long-term capital gains are not taxed.
3. Exit Option: If a company wants to exit the market from a particular country or wants to close the
companies it can offer to buy back its shares that are trading in the market.
4. Increase in Shareholder Value: Buybacks are beneficial to shareholders. The decrease in the
number of shares leads to a rise in earning per share (EPS). Since earnings per share is calculated
by dividing earnings by total number of outstanding shares, when the total number of shares
decreases, earnings per share will increase.
5. Improve return on Equity: Since the company spends cash to repurchase the shares, the cash
holdings in the balance sheet reduces. At the same time, the buyback will also reduce shareholders
' equity by the same amount in the liabilities side of the balance sheet. As a result subsequent to
buy back the Return on Assets (ROA) and return on equity ROE( Return on Equity) also raises.
 6. Raising promoter holding % in the company: The company promoters can increase its stake in
the company by forfeiting the buyback offer. This strengthens their hold over the company and
acts as a defense strategy in the case of hostile takeovers.
Methods of Share Buyback:
I. Tender Offer: A company makes a tender offer to the shareholders to buy back the shares on
a fixed date and at a fixed price. The price of the tender offer almost always includes a premium
relative to the current share price. Then, those shareholders who are interested in selling their
stocks submit their number of shares for sale to the company. Generally, a fixed price tender offer
can allow completing a stock buyback within a short period of time. Recently, Indian Oil
Corporation Limited has offered for buyback of 29,76,51,006 fully paid-up equity shares at a price
of Rs 149 per share.
II. Open Market Share Buyback: A company buys back its shares directly from the market. The
transactions are executed via the company’s brokers. The buyback of shares generally happens
over a long period of time as a large number of shares must be bought. At the same time, unlike
other methods, stock buybacks via the open market do not impose any legal obligations on a
company to complete the buyback program.
Thus, a company enjoys the flexibility to cancel the stock buyback program at any time. The
primary advantage of the open market stock buyback is its cost-effectiveness because a company
buys back its shares at the current market price and doesn’t need to pay a premium. Recently,
Selean Exploration Technology Limited has offered for buyback of 16,400,000 fully paid-up equity
shares at a price of Rs 300 per share.

III. Dutch auction tender offer: In a Dutch auction, a company makes a tender offer to the
shareholders to buy back shares and provides a range of possible prices, with setting the minimum
price of a range above the current market price. Then, the shareholders make their bids by
specifying the number of shares and the minimum price at which they are willing to sell their
shares. A company reviews the bids received from the shareholders and determines the suitable
price within a previously specified price range to complete the buyback program.
The main advantage of the Dutch auction is that it allows a company to identify the buyback price
directly from shareholders. Additionally, using such a method, the stock buyback program can be
completed within a relatively short time frame.

IV. Direct Negotiation

A company directly approaches one or several large shareholders to buy back the company’s
shares from them. In such a scenario, the purchase price of the shares includes a premium. Note
that the key benefit of this method is that a company can negotiate the buyback price directly
with a shareholder. Due to this reason, this method can be highly cost-effective under certain
conditions. However, direct negotiations with shareholders can also be time-consuming.

 Reduction of Share Capital:

Reduction of share capital is regarded as one of the processes of decreasing company’s share capital
(apart from Redemption of preference shares and Buy Back of shares). It means reduction of issued,
subscribed and paid up share capital of the company. In simple words it can be regarded as
‘Cancellation of Uncalled Capital’ i.e. part of subscribed share capital.
After “Capital Reduction” the number of shares in the company will decrease by the reduction
amount.
The need of reducing share capital may arise in various situations, few are listed below:
 Returning of surplus to shareholders;
 Eliminating losses, which may be preventing the payment of dividends;
 May be as part of scheme of compromise or arrangements;
 To simplify capital structure;
Benefits of Reduction of Share Capital
 The Reduction of Share Capital would cause the Balance Sheet to bring in true and fair
representation of the Company by the available assets of the Company and reflect the real
financial position of the Company.
 The financial restructuring will help the Company to reflect the true shareholder value which
would place the Company in a position to pay dividend or raise capital in future.
Reduction of Share capital can be affected in any of the following manner:

I II III

In respect of share capital not
paid-up, extinguishing or reducing
the liability on any of its shares or
Cancel any paid-up share capital,
which is lost, or is not
represented by available assets.
Pay off the paid-up
share capital, which is in
excess of the needs of
the company.
this may be achieved
either with or without
extinguishing or
reducing liability on any
of its shares

⇓ ⇓ ⇓

For example, if the shares are of
face value of INR 125 each of
which INR 100 has been paid, the
company may reduce them to INR
100 fully paid-up shares and thus
relieve the shareholders from
liability on the uncalled capital of
INR 25 per share);
For example, if the shares of face
value of INR 100 each fully paid-
up is represented by INR 75
worth of assets. In such a case,
reduction of share capital may
be affected by cancelling INR 25
per share and writing off similar
amount of assets); or
For example, shares of
face value of INR 100
each fully paid-up can
be reduced to face value
of INR 75 each by paying
back INR 25 per share.)

*Points to remember:
1. A company constituted with limited liability by shares or guarantee and having share capital is alone
entitled to reduce its liability of members.
2. It should have the power under its Articles of Association to do so. If the articles do not contain any
provision for reduction of capital, the articles must first be altered so as to give such power.
3. Reduction is regarded as internal restructuring of the company, therefore the decision of the
majority will prevail by way of special resolution.
4. The reduction affected by such a resolution must be confirmed by the National Company Law
Tribunal.
5. No capital reduction can be undertaken if the company is in arrears in the repayment of any deposits
(including interest payable thereon) accepted by it.
6. Reduction takes effect on registration of the documents with the Registrar of Companies.

 Transfer and Transmission of Shares:

Transfer of shares means transferring title of shares voluntarily, by one party to another. Whereas,
the transmission of shares means, transferring title of shares by the operation of law which a legal
heir initiates.
Details Transfer of Shares Transmission of Shares

What is it? Voluntary Act Operational by law

Who can initiate? Transferor or Transferee Legal heir or receiver

How is it affected? A deliberate act of parties Insolency, lunacy, death, or

inheritance

Is there a consideration? Yes No

Is a transfer deed Yes No

compulsory?

Is stamp duty Yes. Payable on the market value of No

compulsory? shares

Who is liable? Liability of transferor ceases to exist Original liability of shares

post the transfer continues to exist

A. Process to transfer shares:

The following is the process to transfer the Shares step wise: –
 Meeting between transferor and transferee for transfer of shares.
 Execution of Share transfer deed in SH-4 (Format attached) duly executed, signed and stamped by
transferor and transferee as per Law.
 Either transferee or transferor will send share transfer deed along with original certificates or
letter of allotment of securities (if no certificate is given to shareholder) to the Company at the
registered office in case of unlisted Company and to Registrar of Companies (RTA) in case of listed
company within a period of sixty days from the date of execution.
 The Company within a period of one month from the date of receipt by the company of the
instrument of transfer shall register the transfer and issue the new share certificate to the
transferee.
 The Company will update its register of members accordingly.

Documents required to transfer the share:

The following documents will be required to give effect for transfer of shares:-
 Original share certificate(s) of transferor
 Self-attested copy of PAN card of Transferor(s) (i.e. sellers) and Transferee(s) (i.e. buyers)
 Pay appropriate stamp duty @0.25% on market value by way of franking or affix share transfer
stamps.
 Form SH-4 duly filled and signed.
Note: In following situations and under the subsequent time limits, the company shall issue
certificates to all securities allocated/transferred/transmitted:-
A. For memorandum subscribers – within 2 months of the date of incorporation.
B. In the event of allocating all of the shares within 2 months of the allocation date,
C. Delivery of the Transfer/Intimation Transmission Instrument by the client within 1 month from the
delivery date.
D. Allocation of debenture – within 6 months of the allocation date.

B. Procedure for Transmission of Shares:

Step 1: Application by Survivor for transmission of shares by providing death certificate of the
deceased shareholder.
Step 2: Review and Verification of documents by the Company
*As the process of transmission of shares is by operation of law, stamp duty payment or payment of
consideration amount is not required at all.

Step 6: Issue of share certificates after transmission

Once the entire share transfer procedure is complied with, new share certificates need to be issued
within 1 month unless prohibited by any provision of law or of any order of any Court, Tribunal or
other authority.
Document required for transmission of shares:
The procedure of transmission of shares requires following documents to be submitted-
1. Shares held in Demat account
If the shares are in demat account then the survivor needs to submit following documents-
1. Transmission Request Form(TRF)
2. Affidavit on 100/- stamp paper for claiming the legal heir of the beneficial owner
3. Notarized copy of the death certificate
4. Indemnity deed on 500/- indemnifying both, the depository and Depository Participants (DP)
5. NOC From legal heirs
6. Family settlement deed duly executed by all legal heirs of the deceased beneficial owner

Note: If the value is more than Rs 2 lacs the Depository Participants (DP) may insist to submit more
documents apart from above as below
1. Succession certificate
2. Probated will
3. Surety Form

2. Shares held in Physical Form

In case if shares are in physical form the Share transfer agent any ask following documents to submit
in procedure for transmission of shares-
1. Transmission Request Form(TRF)
2. Notarized copy of the death certificate
3. Original Share Certificates
4. Succession certificate
5. Probate or letter preferably notarized

 Debentures:
 It is an instrument acknowledging a debt by a company to some person or persons.
 A debenture is usually in the form of a certificate (like a share certificate).
 A debenture usually provides for the payment of a specified sum at a specified date.
 A debenture usually provides for payment of interest until the principal sum is paid Back.
 A company can issue debentures with an option to convert such debentures into shares, either
wholly or partly at the time of redemption.
 Company can issue secured and unsecured debentures
 As per the law, No company shall issue any debentures carrying any voting rights.
 An issue of secured debentures may be made, provided the date of its redemption shall not
exceed 10 years from the date of issue. If a company engaged in the setting up of infrastructure
projects may issue secured debentures for a period exceeding 10 years but not exceeding 30 years.
 An issue of debentures shall be secured by the creation of a charge, on the properties or assets of
the company, having a value which is sufficient for the due repayment of the amount of
debentures and interest thereon.
 A company cannot issue debentures to more than 500 people without appointing a debenture
trustee, whose duty would be to protect the interest of Debenture Holders and redress their
grievances.
 Company shall create a debenture redemption reserve account out of the profits of the company
available for payment of dividend and the amount credited to such account shall not be utilized
by the company except for the redemption of debentures.
 The security for the debentures by way of a charge or mortgage shall be created in favour of the
debenture trustee on-
(i) any specific movable property of the company (not being in the nature of pledge); or
(ii) any specific immovable property wherever situate, or any interest therein.
For the easy understanding of how debentures differ from shares, see the below distinguishing table:

Particulars Debenture Share

Definition Company debentures are the loan The fund raised by share selling is
contract by that company borrow fund the company’s assets.
from the public.

Status of the Investors who buy debentures from a Individuals who own shares of a
holders company are entitled as debenture company are determined as
holders, and they are creditors to the shareholders, and they are owners
company. of the concerned organisation.

Payment Debenture carries security on return. Shares don’t carry any security on
security return.

Return Companies repay the borrowings at a Shareholders get a return by

fixed rate of interest to the debenture dividend payment.
holders.

Operation In case of debentures, the holders get Shareholders’ payments are made
method interest regardless of the profit of the from the profit earned by the
company. concerned company.
 Controlling Company debenture holders are not As owners, shareholders carry the
rights allowed to vote or control the power to vote and control the
management. management to some extent.

Conversion Debentures can be converted into shares. Shares don’t carry the option to be
option converted into debentures.

Trust deed At the time of issuing debentures, a trust Shares don’t carry any trust deed.
deed is mandated to be circulated as well.
This is to protect the investment as there
is no collateral against the loan.

CAN A PRIVATE COMPANY LIST ITS DEBENTURES?

Yes, a Private Company can issue bonds/debenture under the Companies Act 2013. There are
regulations with respect to maintain asset cover, credit score rating, debenture redemption reserve,
hold liquid assets for current maturities, etc.

Redemption of Debentures:
A company shall pay interest and redeem the debentures in accordance with the terms and conditions
of their issue.

Sources of Redemption of Debentures The various sources out of which the debentures may be
redeemed are:
 Out of fresh issue of shares/Debentures
 By utilization of a part of the capital By utilization of profits
 By conversion into shares/debentures
 Out of proceeds from sales of fixed assets
 By purchase of own debentures

Methods of Redeeming Debentures Following are some of the important methods of redeeming
debentures :
 Redemption by Lump-sum payment
 Redemption by annual installment payment
 Redemption by sinking fund method
 Redemption by insurance policy method
 Redemption by the purchase of own debentures in the open market
 Redemption by conversion into new shares or debentures

 Acceptance of Deposits:
Deposits: deposit is any money that is received, either by means of a deposit or a loan or any other
form as may be prescribed, but does not include certain classes of transactions like-
1. Loans taken by a company from another company;
2. Loans from directors or a relative of a director
3. Any non-interest bearing amount received and held in trust;
4. Any amount received from an employee of the company not exceeding his annual salary in the
nature of non-interest bearing security deposit;
5. Loans or facility from banks;
6. Loans from Public Financial Institutions/ Insurance Companies;
7. any amount received from foreign Governments, foreign or international banks, foreign bodies
corporate and foreign citizens, foreign authorities or persons resident outside India;
8. any amount received from the government
9. Any amount received through Public offer
10. . Any amount raised by issue of Unsecured Non-convertible debentures;
11. Any amount received in the course of business etc
Who can invite deposits?
1. Acceptance of deposit from Members: Any company (whether private or public) can accept
deposits from its members, subject to the passing of a resolution in general meeting and payment
of interest on such deposits. .
2. Acceptance of deposits from the Public: Only a public company(eligible company), having a net
worth of not less than Rs. 100 Cr. OR a turnover of not less than Rs. 500 Cr., can accept deposits
from the Public.
Rules:
 No company shall accept or renew any deposit, which is repayable on demand; or on notice; or
after a period of less than 6 months or more than 36 months from the date of acceptance or
renewal of such deposits, as the case may be.
 However a company may, for meeting short-term requirements of funds, accept or renew short-
term deposits for repayment earlier than 6 months from the date of deposit or renewal; subject
to certain condition.
 There are Ceiling limits for Acceptance of Deposits. The limits are based on amount of paid-up
share capital and free reserves of the company
 Also 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.
 Every eligible company shall obtain, at least once in a year, credit rating for deposits accepted by
it and a copy of the rating shall be sent to the Registrar of Companies along with the return of
deposits
 Every company inviting secured deposits shall, within 30 days from the date of acceptance,
provide for security by way of a charge on its assets, by way of either mortgage or hypothecation
only.
 Every company, inviting secured deposits, shall appoint one or mere trustees for depositors for
creating security for the deposits.
 Every company accepting deposits shall maintain the Register of Deposits Every company shall file
a return of deposits, with the Registrar of Companies on or before 30th June of every year.
 Company must Repay the deposits within three years from such commencement or on or before
expiry of the period for which the deposits were accepted, whichever is earlier.

 Registration of Charges:
A charge is a security, given for securing loans or debentures. The security may be provided
either by way of mortgage, hypothecation or pledge.
Thus, charge is a general concept and it covers each and every mode of creating the security
on the assets of a company, for the purpose of securing the repayment of any
debt due by a company. A Charge is a right created by a company i.e. "Borrower" in favour of
a financial institution or a bank or any other lender, i.e. "creditor" who has agreed to extend
financial assistance to the company on its assets or properties or any of its undertakings
present and future.
TYPES OF CHARGES :-
 Fixed Charge:
o A charge which is identifiable with specific and clear asset/property at the time of creation of
charge.
o The Company cannot transfer such identified and defined property unless the charge holder
(creditor) is paid off his dues.
 Floating Charge:
o It covers the floating and circulating nature of properties of a company, like sundry debtors, stock
in trade etc.
o The nature of the property charged may change from time to time.
o The floating charge crystallizes into fixed charge if the Company crystallizes or the undertaking
ceases to be a going concern.
 Every company, creating or modifying a Charge on its property, assets or undertakings, whether
it is tangible or intangible situated within or outside India, shall register the particular of Charge
with the Registrar within 30 days of such creation. Once the Charge is registered, Registrar will
issue a certificate of registration of such Charge
 Modification of charge will be per the above procedure. After filing the form for the modification
of charge, ROC will issue the certificate for modification of charge
 The company shall within the period of 30 days intimate the Registrar of companies about the
complete repayment of loan. The Registrar shall enter the memorandum of satisfaction of Charge
and issue the certificate of registration of satisfaction of Charge to the company.

 You can see the brief information about the charges on any company by visiting the
site- http://www.mca.gov.in/mcafoportal/viewCompanyMasterData.do

 Management and Administration of the company:

Meetings:

Requisites of Valid Meeting:

Following are the requisites for valid meeting:
1. properly conducted
2. Conducted by Authorized persons
3. Proper and also adequate notice
4. legally constituted.
5. must have a chairperson.
6. follow rules of quorum
7. validly transacted business

Procedure of meetings
All the meetings held in companies have to follow certain well defined rules and procedure for
their efficacious functioning. There may be certain variations but general procedure is
same. There are some steps that have to be mandatorily followed:
Issuance of notification– The board of directors and all the concerned members have to be
informed beforehand about the meeting to ensure their presence. It can be a long term or short
notice depending on the situation.
Contents of notice– The notice has to specify place, date , time, description about the matter
of importance to be discussed and some brief about business. It has to be duly signed by the
convener with the date of issuance.
Quorum– The person responsible for notifying the meeting has to ensure that the meeting has
been pre notified to appropriate quorum which has to be present in the meeting as specified
in the Act. The quorum has to be maintained throughout the meeting.
Chairman– Every meeting has to be compulsorily presided by a chairperson. Generally, the
chairman of the Board of Directors is the Chairman of the meeting.[xxii] He is responsible to
initiate the discussion of motions in the meeting and conclude the same. It’s his responsibility
to ensure smooth functioning of the meeting. The chairman can also be selected by voting
through hands.
Resolutions– These are the decisions taken in every meeting. When these are put to
consideration and voting there are certain procedures and rules to be followed. These are
provided in various sections.
Voting – There might be matters on which there is no general consensus and voting has to be
done. After detailed discussion, the chairperson may call the matters (if undecided) for voting.
There have been specified requirements for voting in different meetings in the companies Act,
2013. The process of voting is supervised by the chairman.
Adjournment and Minutes – After careful consideration and discussion, the meeting is
concluded which is called as adjournment and subsequently dissolution where members
disperse. These deliberations have to be documented in an official document of the company
providing gist of every meeting which are called minutes of meeting. Every important detail of
the meeting has to be included as said in companies’ act 2013.
Report– companies are required to prepare a report of the meeting as in case of AGM detailing
the conduct of the meeting. The copy of the same has to be filed with the registrar.

Kinds of Company Meetings:

The meetings of a company can be broadly classified into four kinds.
1. Meetings of the Shareholders.
2. Meetings of the Board of Directors and their Committees.
3. Meetings of the Debenture Holders.
4. Meetings of the Creditors.

1. Meeting of the Shareholders

The meetings of the shareholders can be further classified into four kinds namely,
1. First annual general meeting,
2. Annual General Meeting,
3. Extraordinary General Meeting, and
4. Class Meeting.

The chart given below gives a classification of company meetings.

1. first annual general meeting

This is the first meeting of the shareholders conducted after the commencement of the business of a
public company. Companies Act provides that every public company limited by shares or limited by
guarantee and having a share capital should hold a meeting of the shareholders within 6 months but
not earlier than one month from the date of commencement of business of the company. A private
company or a public company having no share capital need not conduct this meeting.
But in the case of a first annual general meeting, the company can hold the AGM in less than nine
months from the end of the first financial year. In such cases where the first AGM is already held, there
is no need to hold any AGM in the year of incorporation. Do note that the time gap between two
annual general meetings should not exceed 15 months.
A notice of at least 21 days before the meeting. The Board of Directors must prepare and send to every
member a report called the "Statutory Report" at least 21 days before the day on which the meeting
is to be held. It will contain information about matters to be discussed in the meeting.
In this meeting, the following matters only can be discussed :-
Floatation of shares / debentures by the company, Modification to contracts mentioned in the
prospectus, which shares have been taken up, what money has been received, what contracts have
been entered into, what sums have been spent on preliminary expenses, etc.

2. Annual General Meeting

The Annual General Meeting is one of the important meetings of a company. It is usually held once in
a year. AGM should be conducted by both private and public ltd companies whether limited by shares
or by guarantee; having or not having a share capital. As the name suggests, the meeting is to be held
annually to transact the ordinary business of the company.

Notice Period- not less than 21 days before the scheduled day. In some cases the meeting can be
called on a short notice
Time and place of meeting – It has to be scheduled in the course of business hours of the company on
a working day and cannot be on a national holiday. Generally, it has to be the registered office of the
company where the meeting has to take place. It could also be some other place in the city where the
main office is registered.
Due date of the meeting – The meetings are stipulated to be held within nine months from closing of
first financial year of the company and six months from the closing in subsequent years. Time elapse
between two meetings cannot be more than 15 months.

Quorum:
In case of public company: Number of members as on date of meeting Quorum for meeting
 Up to 1000 - 5 members personally present
 > 1000 but ≤ 5000 15 members personally present
 > 5000 30 members personally present

In the case of a private company, 2 members personally present, shall be the quorum for a meeting
of the company.

3. Extra-ordinary General Meetings (EOGM)

Statutory Meeting and Annual General Meetings are called the ordinary meetings of a company. All
other general meetings other than these two are called Extraordinary General Meetings. As the very
name suggests, these meetings are convened to deal with all the extraordinary matters, which fall
outside the usual business of the Annual General Meetings.

EOGMs are generally called for transacting some urgent or special business, which cannot be
postponed till the next Annual General Meeting. Every business transacted at these meetings is called
Special Business.

 Calling the meeting[ix]– The board of directors has been vested with powers to call
extraordinary general meeting (they cannot call AGM). Also the Act provides calling the
meeting on requisition made by members holding not less than 1/10 of shares on day of
voting or holding not less than 1/10 of total voting power. Also national company tribunals
can call EOGMs.
  Time – The meeting is called between two AGMs to discuss matter requiring serious
attention.

Requisitioning the meeting– The requisitionists can call the meeting within 3 months of issuing a
requisition notice if the board fails to do so within 45 days (though they have the duty to call it within
21 days).

Persons Authorized to Convene the Meeting

The following persons are authorized to convene an extraordinary general meeting.
1. The Board of Directors.
2. The Requisitionists.
3. The National Company Law Tribunal.
4. Any Director or any two Members.

4. Class Meetings
Class meetings are those meetings, which are held by the shareholders of a particular class of shares
e.g. preference shareholders or debenture holders.

Class meetings are generally conducted when it is proposed to alter, vary or affect the rights of a
particular class of shareholders. Thus, for effecting such changes it is necessary that a separate
meeting of the holders of those shares is to be held and the matter is to be approved at the meeting
by a special resolution.

For example, for cancelling the arrears of dividends on cumulative preference shares, it is necessary
to call for a meeting of such shareholders and pass a resolution as required by Companies Act. In case
of such a class meeting, the holders of other class of shares have no right to attend and vote.

 Proxies
Meaning: The word "proxy" has two different meanings. Firstly, it means the agent appointed by the
member of a company to attend and vote on his behalf at a meeting of members. Secondly, it means
the document by which such an agent is appointed. The relation between the member appointing
proxy and the proxy so appointed is that of principal and agent and thus this relationship is governed
by the relevant provisions of Indian Contract Act, 1872.

Who has right to appoint proxy:

In the case of a company having a share capital every member of the company who is entitled to
attend and vote at the meeting can appoint a proxy.

In the case of a company not having a share capital, this right is available only if the articles make a
specific provision for it. A proxy need not be a member of the company. Generally, the preference
shareholders are not entitled to appoint a proxy as they are not entitled to vote at the meeting. It may
be noted that a member of a company registered under section 8 (Non-Profit Company) shall not be
entitled to appoint any other person as his proxy unless such other person is also a member of such
company.

Person acting as a proxy:

A person can act as proxy on behalf of members not exceeding 50 and holding in the aggregate not
more than ten percent of the total share capital of the company carrying voting rights. A member
holding more than ten percent, of the total share capital of the Company carrying voting rights may
appoint a single person as proxy and such person shall not act as proxy for any other person or
shareholder.

 Manner Of Voting By Shareholders:

1. Show of Hands:
Here, 1 member = 1 vote
The method of voting by show of hands shall be adopted first for deciding the fate of motion.
It may be noted that proxies are not allowed to vote on a show of hands. After counting the
votes in favour and against the resolution, the Chairman may declare that on show of hands,
it has been carried on or it has been lost. A declaration by the Chairman of the resolution of
the voting by show of hands and an entry to this effect in the minute’s book of the proceedings
of the meeting shall be conclusive evidence of such a declaration. Directors present at
general meeting cannot participate at the general meetings unless they are
member themselves and having a right to vote.

2. Voting through Electronic Means

This new concept of e-voting is a method of voting via electronic means. The
Central Government has prescribed that every listed company or a company
having ≥ 1000 shareholders, shall provide to its members facility to exercise their
right to vote at general meetings by electronic means.

3. Demand for Poll

A poll can be ordered at any time before or after the declaration of the result on the
voting of any resolution by show of hands. Here, 1 share = 1 vote

A poll can be demanded by any of the following persons :-

(i) Chairman himself;

(ii) Members and proxies.

The Chairman shall order a poll to be taken, if any demand is made in this behalf:-

In the case of a company having a share capital, by any member or members

present in person or by proxy and holding shares in the company:

(i) Which confer a power to vote on the resolution ≥ 1/10th of the

total voting power in respect of the resolution; or

(ii) On which an aggregate sum of ≥ ₹ 5,00,000 has been paid up;

 in the case of any other company, by any member or members present in person
or by proxy and having ≥ 1/10th of the total voting power in respect of the resolution.

The demand for a poll may be withdrawn at any time by the person or persons
who made the demand.

Time of taking poll: A poll demanded on the question of adjournment of the

meeting and on the election of Chairman under Section 104 must be taken
immediately. A poll demanded on any other question shall be taken at any time
within 48 hours of the time of making a demand.

4. Passing of resolution by Postal Ballot

Postal Ballot describe the method of voting in which ballot paper are dispatched to
the members of the company and such paper returned to the company by post, it
is called the postal ballot. One Person Company and other companies having
member upto 200 are not required to transact any business through postal ballot.
Transaction of business through postal ballot: Only the following items of business
shall be transacted only by means of voting through a postal ballot-

 Alteration of Object clause of Memorandum.

 Conversion of private company into a public company and vice versa.
 Change of location of the registered office outside the limits of any city, town or village.
 Change in Objects owing to which a company has gathered funds from the public
through a prospectus, and the existence of any unutilized amount out of the money so
raised.
 Issue of shares through differential voting rights.
 Variation of rights of shareholders, debenture holders or other security holders.
 Buy-back of a company’s shares.
 Sale of the whole or bulk of an undertaking of the company.
 Providing loans, guarantee or security in excess of the specified limit.

2. Meetings of the Directors

Meetings of directors are called Board Meetings. These are the most important as well as the most
frequently held meetings of the company. It is only at these meetings that all important matters
relating to the company and its policies are discussed and decided upon.

Since the administration of the company lies in the hands of the Board, it should meet frequently for
the proper conduct of the business of the company. The Companies Act therefore gives wide
discretion to the directors to frame rules and regulations regarding the holding and conduct of Board
meetings.

(*First board meeting – The first meeting should be held within 30 days of the incorporation of the
company. The board of directors use their expertise and knowledge and discuss strategies to run the
company.)
Time and due date – In a year not less than 4 meetings are to be held and not more than 4 months
should pass between two meetings. In other words, every board meeting has to be held within 3
months to complete the required provision.
Presence of directors – The directors are not required to physically present in every meeting, they can
be present through other video or audio means. But there may be certain matters which cannot be
discussed through video conferencing or audio visual means and in such cases central government
may prohibit the use of the same. Also a director can only remain absent if granted permission by the
chairman.
Notice- Every director has to be pre notified about the meeting at his registered address and notice
should be given in not less than 7 days.
Quorum– The board meeting is to comprise 1/3rd of total members or two directors (whatever is
feasible).

3. Meetings of Debenture Holders

The debenture holders of a particular class conduct these meeting. They are generally conducted
when the company wants to vary the terms of security or to modify their rights or to vary the rate of
interest payable etc. Rules and Regulations regarding the holding of the meetings of the debenture
holders are either entered in the Trust Deed or endorsed on the Debenture Bond so that they are
binding upon the holders of debentures and upon the company.

4. Meetings of the Creditors

Strictly speaking, these are not meetings of a company. They are held when the company proposes to
make a scheme of arrangements with its creditors. Companies like individuals may sometimes find it
necessary to compromise or make some arrangements with their creditors, In these circumstances, a
meeting of the creditors is necessary.

 Board of Directors:

 Roles of Director:
 Agent: The Director acts as agent of shareholders and promotes the objects of Company so
that Company can earn good profit and increase the intrinsic value of share and Earning of the
Company.
 Employee: Any Whole time director appointed by the Board of Directors and approved by the
shareholders of the company acts as an employee of the Company by managing day to day
affairs of the Company. All the Directors operate the Company in the contours of employment
Letter issued by the Board of Company.
 Officer: Directors is treated as main officer of Company who shall be liable for penal
consequences under various statues, if affairs of Company are not in compliances as per
Companies Act, Income Tax Act, FEMA provisions and other applicable Legal statues defined
for various industries.
 Trustees: Director is treated as trustees of the company, money and property of the powers
entrusted to and vested in them only as trustee.
 Responsibilities of Director:
 A director of the company must act in accordance with AOA.
 A director of a company shall act in good faith in order to promote the objects of the company
for the benefit of its members/ shareholders as a whole, and in the best interests of the
company, its employees, the shareholders, the community and for the protection of
environment.
 A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.
 A director of a company shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
  A director of a company shall not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners, or associates.
 A Director must ensure that all the affairs of Company are being done in best possible way
and without compromising on legal Compliance of the Company and at same time which are
not prejudicial for the interest of Company.

 Liabilities of a director of a company:

The Liabilities of Director of Company are broadly defined in two categories:
1. Liability to Stakeholders: The directors are not personally liable to stakeholders if they act within
the scope of powers vested in them. The general rule in this regard in that wherever an agent is
liable, those directors would be liable, but where the liability would attach to the principal only,
the liability is the liability of the company. The Director shall also be liable in case of negligence &
fraud by the Company, knowingly making any mis-statement or sharing false-information with the
stakeholder, Failure to repay deposits on time, payment of dividend out of capital and entering
into contract with related parties.

2. Liability to Company: The directors shall be liable to the company for the following:
a. Where they have acted ultra-vires the company: Directors have powers subject to Companies
Act, Memorandum and Articles of association. Whenever they exceed these limits they are personally
liable for the act being ultra vires. But if acts are intra-vires the company such acts can be subsequently
ratified by the shareholders in the general meeting, otherwise, if a company suffers a loss on ultra-
vires acts of its directors, the company can claim such loss from the directors.

b. When they have acted negligently: Negligence may give rise to liability; there need not be
fraud. But they will not be liable where they have acted bonafide and for the benefit of the company.
However, the error of judgement will not be deemed as negligence.

c. Where there is a breach of trust: Directors are the trustees for the money and property of the
company. They hold an office of trust and if they misuse their powers they will be liable for breach of
trust and may be required indemnify the losses incurred to Company. They also need to make regular
disclosures on their profits, if any, earned in course of the performance of duties. Director can also be
held liable for misconduct, provided it is not willful.

d. Misfeasance: Directors are liable to the company for misfeasance. The word misfeasance
covers willful negligence. Mere failure on the part of the director to take necessary steps for recovery
of debts due to the company does not constitute misfeasance. If the company is in the course of
winding up, the court may, on the application of the liquidator, creditor or contributory examine the
conduct of a director for any misfeasance or breach of trust in relation to the company.

 Types of Directors
In a company, there are different types of directors.

1. First Directors: A person who is appointed by the subscribers of the

memorandum of the company. They are generally listed in the articles of
Association. They shall be deemed to be a director till the directors
are appointed in the annual general meeting.
2. Residential director – each company shall have a director who has remained
in India for 182 days or more.
3. Additional Directors – Directors who are appointed by the Board if the need
arises and the power has been provided under Articles of Association and
also one thing to remember that the total strength must not exceed the
number provided in the Articles[xvi]. They are appointed when the strength fell
down below the legal minimum then appointment is valid. Additional Director
has term upto next ensuing General Meeting or the last date on which the Annual
General Meeting should have been held, whichever is earlier.
4. Alternate Directors – a company may appoint an alternate director if the
articles present such power on the company or a resolution is passed (if a
Director is absent from India for at least three months). There are some
conditions also, like;
a.) An alternate director cannot hold the office longer than the term of the
director.
b.) An alternate director has to vacate the position immediately when the
original director returns.
5. Casual vacancies: Where a Director appointed at the AGM vacates office
before his or her term of office expires in the normal course, the resulting
vacancy may, subject to the Articles, be filled by the Board. Such person so
appointed shall hold office up to the time which the Director who vacated
office would have held office if he or she had not so vacated such office.
6. A Managing Director- is a Director who has substantial powers of
management of the affairs of the company subject to the superintendence,
control and direction of the Board in question. He has a tenure of 5 years.
7. A Whole-time Director- includes a Director who is in the whole-time
employment of the company, devotes his whole-time of working hours to the
company in question and has a significant personal interest in the company
as his source of income”. He has a tenure of 5 years.
8. Executive director- He/she is the full-time working director of the company.
They have a higher responsibility towards the organization. The company and
its employees expect them to be efficient and careful in all the dealings. An
Executive Director can be either a Whole-time Director of the company or a
Managing Director.
9. Non-Executive Directors- He/she are non- working directors and are not
involved in the everyday working of the company. They might take part in the
planning or policy-making process. They challenge the executive directors to
come up with decisions and solutions that are in the best interest of the
company.a non-executive Director is a Director who is neither a Whole-time
Director nor a Managing Director.
10. Independent director – an independent director is an alternate director other
than a Managing Director/Whole Time Director/Nominee Director. Every listed
public company shall have at least one third of the total number of directors as
independent directors.the following type of companies which have to appoint a
minimum two independent directors:
a.) Public Companies which have a turnover of Rs.10 Crores or More;
b.) Public Companies which have revenue of Rs.100 Crores or More
c.) Public Companies which have total outstanding loans, debenture, and
deposits of Rs. 50 Crores or More.
 *Qualifications to be an independent director:

1. Must have expertise and experience;

2. Must be a person of integrity;
3. Should not be a promoter of the company or its subsidiaries;
4. Should have no relations (financial/personal) with the promoters, or directors of
the company;
5. Should not have been key managerial personnel of the company or any of its
holdings and subsidies;
6. Should not hold total voting power exceeding two percent in such company.
11. Small Shareholders Directors – Small shareholders can appoint a single
director in a listed company, but this activity needs an appropriate technique like
passing over a notice to at least 1000 Stakeholders or 1/10th of the entire investors.
12. Women Director – there are certain classifications according to which there
ought to be one woman as a director on the Board. Any listed public company
having;
a.) Turnover of Rs. 100 crores or more,
b.) Revenue of Rs. 300 crores or more.
13. Shadow Director – A person who is not selected in the Board but on whose
directions the board may act and has some power to run it can be appointed as the
director but according to his wish.
14. Nominee Directors – They can be chosen by individual stakeholders, third
parties through contracts, lending public financial institutions or banks, or by the
Central Government in case of oppression or mismanagement. Nominee director
has term upto the term as written into the agreement or other arrangement
 Appointment of directors:
In case of Public Company or a Private Limited Company Registration is done as

a subsidiary or associate of a Public Company- Two-third of total Directors are

to be appointed by the shareholders.

1. Balance one-third appointment is made as per the Articles of

Association (AoA). If not then the shareholders shall appoint the

remaining.

In case of A Private Limited Company is not a subsidiary or associate of a Public

Company.- The AoA prescribes the manner of appointment of any or all the

Directors.

1. If not then the Directors must be appointed by the shareholders.

Procedure for appointment of directors-

1. The first step is to obtain the consent of the proposed directors

2. Digital Signature Certificates of the Proposed Directors
3. Get the Director Identification Number (DIN)
4. A letter in writing to the effect that the person is not disqualified to be appointed as Director as
specified under Law; Disclosure of Interest in Other Companies (shareholding pattern); if any, else
a NIL disclosure is sufficient.
5. Notice to call Board meeting with Explanatory Statement
6. Appointment letter to be issued by the Company to a director for its appointment.
7. Relevant E-form with ROC along with above-mentioned documents such as consent / Approval
letter, DIR- 2, and notice and certified copy of a resolution of Meeting. Form to be filed within 30
days.
 Remuneration to Directors:

How a Company Pays Remuneration to Directors?

There are various ways to pay returns and remuneration to the directors besides a

monthly salary. It can be in any form such as in cash or in kind. Listed below are

the various types of remuneration.

• Monthly Remuneration
A company can pay a fixed amount of remuneration to its directors. It can be on a

monthly basis or in any pre-decided manner.

• Percentage of Profit
The company can also decide to pay a certain percentage of profit to its director.

The basis of percentage of profit is the value added by the director to the company

and position. Such returns are payable to technical or expert directors.

• Sitting fees
Generally, independent directors or non-executive directors are paid sitting fees. It

is the amount paid to a director to attend Board/Committee Meetings. Any specific

amount or rate can be prescribed in AoA or decided while making the appointment.

The fees can be paid:

a. Monthly

b. As a Specified Percentage of the Net Profits yearly

c. Partly by method (a) and partly by method (b)

• Remuneration in form of Insurance Premium

Some companies take insurance against negligence and breach of duty by

directors or KMP (Key Managerial Personnel). The premium paid is considered

remuneration, but only if the director is found to be guilty.

• Sweat Equities
Sweat equities are issued at discount or for considerations other than cash. They

are issued to a person for any value addition or contribution of know-how or

assignment of IP rights. The directors can also take benefit of this. Such rewards

are for unusual contribution or technical expertise for business growth.

• ESOP
ESOP is a type of equity, issued to the directors and specified employees of the

company with certain terms. It is not related to the company’s profit hence can be

issued even in case of losses. An Independent director shall not be entitled

to ESOP.

The company can choose to provide any of the above types other than the monthly

payments. It can also choose a combination.

A. In case of a Public Company-

 When the company has adequate profit-

Condition Max Remuneration in any financial year

Remuneration payable by a public company, to its directors, managing director and whole-time
director and its manager in respect of any financial year:

Company with one Managing director/whole 5% of the net profits of the company
time director/manager

Company with more than one Managing 10% of the net profits of the company
director/whole time director/manager

Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time
directors:

For directors who are neither managing 1% of the net profits of the company if there is a
director or whole-time directors managing director/whole time director

If there is a director who is neither a 3% of the net profits of the company if there is
Managing director/whole time director no managing director/whole time director
A Remuneration payable to directors who are neither managing directors nor whole-time directors:
public companies can pay its managerial personnel remuneration in excess of 11% by passing a special
resolution by the shareholders. In case a company has defaulted in paying its dues or failed to pay its
dues, permission from the lenders will be necessary.

 When the company has inadequate profits/no profits: In case a company has inadequate
profits/no profits in any financial year, no amount shall be payable by way of remuneration
except if these provisions are followed.
Where the effective capital is: Limits of yearly remuneration

Negative or less than 5 Crores 60 Lakhs

5 crores and above but less than 100 84 Lakhs

Crores

100 Crores and above but less than 120 Lakhs

250 Crores

250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess of
250 Crores

B. In case of a Private Company-

As per company act 2013, a maximum ceiling of remuneration is exempted for Private limited
company; a private company can pay any amount to the managerial provided such private company
should not be a subsidiary of a public limited company.
Either a managing director or a full- time director of a company can be paid:
 By the method of Monthly Payment
 At a predefined level of the net profits of the Company

How does a Private Limited Company decide Remuneration?

When there are no specific norms in law, the company may decide remuneration considering different
aspects. Below are some modes to decide remuneration.
• Articles of Association- AOA
Like the clause of the roles and responsibilities of directors, the company may also provide a clause
for returns and remuneration. AOA can provide any specific ceiling limit or manner of calculation.
• At the time of Appointment
This is the most widely used and convenient mode when the company has no set policy to pay returns
and remuneration paid to the directors. The remuneration terms are fixed at the time of appointment
itself, as in an employment offer letter. The company and director mutually decide the terms of
appointment including returns. If the company adopts this method, it must be there in the resolution
passed for appointment in the meeting.
• In General Meeting/Board Meeting
The other way is to pass a resolution in a general meeting or board meeting for any Changes in current
payment.
 Loan to Directors:
The Company shall not advance any loan, including any loan represented by a book debt, to any of its
directors or to any other person in whom the director is interested. Company shall also not give
guarantee or provide security in connection with any loan taken by him or such other person. This
provision shall not apply in the following case: 1. the giving of any loan to MD or WTD- as a part the
conditions of service extended by the company to all its employees or any scheme approved by the
members by a special resolution. 2. If loan or guarantee or security is provided in ordinary course of
business and interest is charged at the rate not less than the bank rate declared by the RBI.
Any other person in whom the director is interested means: 1. Any director of the lending company
or of a company which is its holding company. 2. Any Partner or relative of any such director. 3. Any
firm in which a director or relative is a partner. 4. Any private company of which such director is a
director or member. 5. Any body corporate at a GM of which not less than 25% of total voting power
may be exercised by such a director. 6. Any body corporate the Board or MD or manager whereof is
accustomed to act in accordance with the directions or instruction of the BOD of the lending company.
 Related party transactions:
This provision is applicable to One person Company, Section 8 Company, private company as well as
public companies. “related party”, with reference to a company, means—

Transactions which are deemed as related party transactions: Any transaction between a
company and its related party relating to:
Meaning of Office or place of profit for this purpose:
“office or place of profit” means any office or place—
(i) where such office or place is held by a director, if the director holding it receives
from the company anything by way of remuneration over and above the remuneration
to which he is entitled as director, by way of salary, fee, commission, perquisites, any
rent-free accommodation, or otherwise;
(ii) where such office or place is held by an individual other than a director or by any
firm, private company or other body corporate, if the individual, firm, private company
or body corporate holding it receives from the company anything by way of
remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or
otherwise;
◊ Exemptions/Non-applicability
The above mentioned provisions will not be applicable in case of transactions entered
into by the company in its ordinary course of business, which are on arm’s length
basis.
“arm’s length transaction” means a transaction between two related parties that is
conducted as if they were unrelated, so that there is no conflict of interest.
What are steps when a related party transaction has been done or about to take
place in the company?
We can divide related party transaction approval in two parts broadly:-
1. Requirement to pass Board Resolution Only
2. Requirement to take Approval from Members of the Company apart from Board of
Company.
Lets us understand this in below simple manner, if transaction amount/value is within
the limit then only Board Resolution and if exceeds the limits then take prior approval
from members of the company by passing of Ordinary Resolution:-

S.no. Transaction Limit

1 Sale, purchase or supply of any goods or material, Ten (10) percent or more of the
directly or through appointment of agent turnover of the company

2 selling or otherwise disposing of or buying property of Ten (10) percent or more] of net
any kind, directly or through appointment of agent worth of the company

3 leasing of property any kind Ten (10) per cent or more of the
turnover of the company

4 availing or rendering of any services, directly or through Ten (10) percent or more] of the
appointment of agent turnover of the company

5 for appointment to any office or place of profit in the Monthly remuneration two and a
company, its subsidiary company or associate company half lakh rupees.

6 for remuneration for underwriting the subscription of One (1) percent of the net worth
any securities or derivatives thereof, of the company

 Declaration and Payment of Dividend:

Dividend:
 Dividend is basically the share of profit distributed among shareholders.
 Ordinary meaning of dividend is a share of profits, whether at a fixed rate or
otherwise, allocated to holders of shares in a company.
 Dividend can be paid on Equity or preference shares both.

Types of dividends:
I. Dividend payable on the basis of Time (When declared)
1. Interim Dividend: When the Board of Directors declare dividend between two
annual general meetings of the company, such dividend is known as Interim
dividend.
2. Final Dividend: When the dividend is declared at the annual general meeting of
the company, it is known as Final dividend. All the provisions applicable on dividend
are also applicable on interim dividend.
II. Dividend payable on the basis of Nature of shares
1. Equity Shares – as per the dividend policy of the company and availability of
profits.
2. Preference shares
a) Cumulative Preference shares
b) Non – Cumulative Preference Shares
Who can declare a Dividend?
All companies can declare dividends except for those who are registered

under section 8.

What are the sources of Dividend?

dividend may be declared out of:

 Profit of the company of the current year

 Undistributed or accumulated profits of the company for any previous years
 Money provided by the Central Government or State Government for paying dividend by the
company in pursuance of a guarantee given by the government.

Provision relating to Declaration of Dividend

 Dividend should be declared by the company at such rate at its annual general meeting as

recommended by the board. The amount of dividend approved by the board cannot be exceeded

by the company.

 A company must primarily adopt its books of accounts, and then only shall it be entitled to declare

the dividend. A company without passing a resolution for the adoption of accounts cannot pass a

resolution for the Declaration and Payment of dividend.

 Once the dividend is declared, it shall be considered as the debt that must be paid by the company

to its shareholders. The shareholders may sue the company in case the dividend is not paid.

Provisions relating to Payment of Dividend

 The amount of the dividend (Including the interim dividend) must be deposited in the bank in a
separate account in five days from the date such declaration of dividend is made. The dividend
shall be payable to the eligible shareholder by way of cash.
 There are occasions when the dividend declared by the company either has not been paid or not
claimed, and wherein such dividend remains to be unpaid or unclaimed within 30 days since the
date of declaration, such company may follow measures that are mentioned below.

 Open up a specific account in any scheduled bank that will be called the “Unpaid Dividend
Account.”
 The unpaid or unclaimed amount is then transferred into that specific account within a seven
days period from the expiry of the thirty days mentioned above.
 In case the unclaimed or unpaid dividend stands unpaid for a period of seven years, then such
amount shall be transferred by the company with interest accrued to the Investor Education
and Protection Fund.

 Corporate Social Responsibility

The concept of CSR can be defined as a corporate effort that assesses and assumes liability for the
environmental and social impacts of the organization.
CSR is said to improve its consumers and society’s image as a brand of a business.
India became, following an adjustment to the Companies Act of 2013 in April 2014, the first nation in
the world to allow corporate social responsibility (CSR) mandatory. As part of accordance with CSR,
companies will spend their income in sectors such as schooling, deprivation, equity and hunger.

Applicability of CSR Provisions

On every company including its holding or subsidiary having:

 Net worth of Rs. 500 crore or more, or

 Turnover of Rs. 1000 crore or more, or
 Net Profit of Rs. 5 crores or more

during the immediately preceding financial year, a foreign company having its branch office or project
office in India,which fulfils the criteria specified above. However, if a company ceases to meet the
above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions
till such time it meets the specified criteria.

What to Do When CSR is Applicable?

If a corporation is listed within the framework of the CSR,it will follow the CSR requirements. The
following actions are expected of organizations:
 The corporations shall be required to constitute the Committee of Corporate Social Responsibility.
 The board of the company takes a call on the CSR expenditure and qualifying activities as CSR.
 CSR projects (and any changes thereof) and their monitoring are subject to the approval of the
company’s board on recommendations of its CSR committee.
 Boards or committees are fully competent to engage third parties to have an impact assessment
of CSR programmes to validate compliance of the CSR provisions of the law.
 Per financial year, these businesses shall invest, in compliance with their Corporate Social
Management Strategy,at least 2% of the total net income of the business generated over the next
three financial years.
 The contents of the board-approved CSR Policy must be disclosed in the board of directors’ report
and on the company’s website.
CSR and its taxation:
 No specific tax exemptions are extended to CSR expenditure. However, certain activities such as
contribution to Prime Minister’s National Relief Fund (Section 80G), scientific research (Sections
35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA)), rural development projects (Section 35AC), skill
development projects (Section 35CCD), agricultural extension projects (Section 35CCC), etc.
aligned to Schedule VII already enjoy exemptions under different sections as indicated under the
Income Tax Act, 1961.
 In case of CSR spend greater than the prescribed CSR spend (2% of average net profit of three
preceding financial years), then the excess cannot be carried forward to the subsequent years
against that year’s prescribed CSR spend.
 For any unspent amount of the prescribed CSR spend, the board can choose to carry forward to
the subsequent years, provided it is over and above that year’s prescribed CSR spend.

 Maintenance of Statutory Registers –

All these registers are required to be kept at the Registered Office of the Company or at any other
place where one tenth of the members reside by passing a Special Resolution.
 Statutory Books: these are the specific records about a company’s shareholders, directors, and
the meetings held. These can either be kept in a loose-leaf binder or bound book or can be kept
in any form like a computer record.
 Registers to be maintained under the Companies Act, 2013
o Register of Members
o Register of Debenture Holders
o Index of Members & Debenture-Holders
o Register & Index of Beneficial Owner
o Register of Directors and Key Managerial Personnel
o Register of Charges
o Register of Renewed and Duplicate Share Certificates
o Register of Employee Stock Options
o Register of Shares/Other Securities Bought Back.
o Registers of Investments of The Company Not Held in Its Own Name
o Registers of Loan & Guarantee
o Registers of Deposits
o Registers of Sweat Equity Shares
o Foreign Register of Members, Debenture Holders, Other Security Holders or Beneficial Owners
Residing Outside India
o Registers of Contracts & Arrangements in Which Directors Are Interested
 Preservation of register of members: Rule 15 states that the register of members along with the
index shall be preserved permanently.
 Preservation of register of debenture holders/ other security holders: The register of debenture-
holder or any other security holder along with the index shall be preserved for a period of 8 years.
 Copies of documents filed with ROC to be preserved: for a period of 8 years from the date of filing
with the RoC.
 Preservation of foreign register: Shall be preserved permanently

 List of Annual Compliance for Private Company are as follows:-

S. No. Particulars Due Dates/Status

1. First Board Meeting Holding of first Board Meeting of Directors within 30

days of incorporation of Company

2. Subsequent Board Meeting Holding of minimum four Board meetings in a calendar

year and not more than 120 days gap should be there
between two meetings
For Small Company, minimum two meetings in each
half of calendar year with minimum gap of 90 days

3. First Annual General Within a period of Nine months from the date of
Meeting closing of the first financial year of the Company
 4. Subsequent Annual General Within a period of six months from the date of closing
Meeting of financial year
Not more than fifteen months shall elapse between
the date of one annual general meeting of a company
and that of the next;

5. Disclosures of Interest by Every Director shall in the first Board meeting of the
Directors/Declaration Board in every financial year disclosure his interest in
form MBP-1 and declaration in form DIR-8

6. Appointment of First Appointment of first auditor in Board meeting within

Auditor 30 days of incorporation

7. Appointment of Subsequent Will be appointed for 5 years in AGM

Auditor Within 15 days from the date of appointment in Annual
General Meeting

8. Filing of form ADT-1 Within 15 days from the date of appointment of

Auditor

9. Filing of Financial Within thirty days of Annual General Meeting

Statements i.e. form AOC-4

10. Filing of Annual Return i.e. Within sixty days of Annual General Meeting
form MGT-7

11. Statutory Audit of Accounts By a Chartered Accountant

12. Filing of Income Tax Return 30th of September every year

of Company
 13. Maintenance of Statutory
Registers, Minutes books
and records
All the Companies are advised to maintain few
statutory registers in the prescribed format such as
register of members, register of charges, register of
directors and KMP, register of loan and guarantee etc.
Minutes of Board meeting and general meeting,
Attendance Register, Books of Accounts etc. are to be
maintained

14. Proof of circulation of Should be maintained for a period of three years from
Notice, Draft and Signed the date of meeting
Minutes

15. Directors KYC* 30th of September

Every Company having outstanding payments dues to

micro and small enterprises and in case the payment of
16. E-Form MSME-I
the same is pending beyond 45 days, then the
Company has to furnish details as per the following
timeline:
For April to September by 31st October
For October to March by 30th April

All the Company having any outstanding loan/amount

as on 31st March of every financial year has to furnish
17. E-Form DPT-3*
details and bifurcation of such outstanding amount
irrespective of the fact whether such amount is falling
under the definition of deposit or not by 30th June

Note:
KMP:-Key Managerial Personnel in a Company are:
-Chief executive Officer (CEO) OR the Managing Director.
-Chief Financial Officer (CFO).
-Manager
-Company Secretary (CS).
-Whole-Time Director.

Case laws:
Salomon v A Salomon & Co Ltd [1897] AC 22

Facts
 Mr Salomon was a shoemaker in England. His sons wanted to become his business partners so he
converted his business into a limited company (A Salomon & Co Ltd).
 A Salomon & Co Ltd purchased Mr Salomon’s business for above market value.
 His wife and his five children became subscribers. The two eldest sons became directors of the
company.
 Mr Salomon was allocated 20,001 of the company’s 20,007 shares.
 The company gave Mr Salomon £10,000 in debentures and received an advance of £5,000 from
Edmund Broderip, on security of the debentures.
 Salomon’s business eventually failed and it defaulted on its interest payments on the debentures
(half held by Broderip). Broderip sued to enforce his security.
 The company went into liquidation. Broderip was repaid his £5,000. This left £1,055 company
assets remaining. Salomon claimed this amount under his retained debentures. This would leave
nothing for unsecured creditors.
 The company’s liquidator argued that Salomon should be responsible for the company’s debts.
Salomon sued for £1,055.
Issue
 Was the formation of A Salomon & Co Ltd a fraud intended to defeat creditors?
Held
 After several sets of proceedings in lower courts, the appeal landed in the House of Lords.
 The Companies Act 1862 (UK) did not require shareholders to be independent of the majority
shareholder.
 A Salomon & Co Ltd was legally constituted and it was not the role of judges to read limitations
into the statute in a manner that they considered preferable.

Daimler Co. Ltd. Vs. Continental Tyre & Rubber Co. Ltd. (1916)
In Daimler Co. Ltd V. Continental Tyre And Rubber Co. Ltd, A company was incorporated in England
for the purpose of selling in England, tyres made in Germany by a German company which held the
bulk of shares in the English company. The holders of the remaining shares, except one, and all the
directors were Germans, residing in Germany. During the First World War, the English company
commenced action for recovery of a trade debt. Held, the company was an alien company and the
payment of debt to it would amount to trading with the enemy, and therefore, the company was not
allowed to proceed with the action.

Jubilee Cotton Mills Ltd. vs Lewis 1924

On 6th January, 1920 the necessary documents were delivered to the Registrar for registration. Two
days later he issued the certificate of incorporation but dated it 6thJanuary instead of 8th.
On 6th January, the company allotted shares to Lewis. It was contended to be void since the company
was not in existence on that date. It was held that the certificate of incorporation is conclusive
evidence of all that it contains. Therefore, in law the company was formed on 6th January and
allotment of shares was valid.
In brief, the certificate of incorporation is conclusive with regard to the following matters:
(a) That the association has been duly registered under the Act.
(b) That it was properly authorized to be registered as a company under the Act.
(c) That the date borne by the certificate of incorporation is the date of the birth of the company. The
company shall be deemed to have come into existence on that very date.
(d) That all the requirements of the Act in respect of the registration and of matters precedent and
incidental thereto have been complied with.
Thus, in case a certificate of incorporation is improperly procured, the legal personality of the
company cannot be extinguished by cancellation of the certificate of incorporation.

Royal British Bank Vs. Turquand (1856)

In this case, the directors of the company had been authorized by the Articles to borrow on bonds that
sum of money as they should from time to time by passing a special resolution in a General Meeting
of the company. A bond under the seal of the company which was signed by the secretary and the
two directors were given to the plaintiff to draw on the current account without the authority of any
resolution. Turquand sought to bind the company’s action on the basis of such a bond. Thus, the main
question of law in this matter was whether the company can be held liable for that bond. The court,
in this case, held that the bond was binding on the company as Turquand was entitled to presume
that the resolution of the company has been passed in the general meeting.