COMPANIES ACT, 1956

Meaning and Definition of a Company

Section 3(1) (i) oI the Companies Act, 1956 deIines a company as: ~a company formed and
registered under this Act or an existing Company.
Existing Company` means a company Iormed and registered under any oI the earlier Company
Laws.
A company may be incorporated association under the company Act. It is an artiIicial person
endowed with legal personality quite independent Irom the members constituting it with a
perpetual succession, a common seal and a common capital, comprised oI transIerable shares,
carrying limited liability.
Characteristics of a Company:
Separate Legal Entity
An ArtiIicial Person
Limited Liability
ree TransIerability oI Shares
Perpetual Succession
Separate property and
Common Seal.
1ypes of Companies:
On the Basis oI Incorporation:
4 Chartered Companies
4 Statutory Companies
4 #egistered Companies
On the Basis oI Liability:
4 Companies limited by Shares
4 Companies limited by Guarantee
4 &nlimited companies
On the basis oI Public interest:
4 Private Company
4 Public Company
On the Basis oI Control:
4 olding Companies
4 Subsidiary companies
On the Basis oI Ownership:
4 Government Company
4 oreign companies
Others:
4 Association not Ior ProIit
4 One-man Company
4 Illegal Associations

!7ivate Company Section 3(1) (iii)]
A private company means a company which has a minimum paid up capital oI one lakh rupees
or such higher paid-up capital as may be prescribed and by its articles:
(a) #estricts the right to transIer its shares, iI any;
b) Limits the number oI its members to IiIty,
(c) prohibits invitation to the public to subscribe Ior any shares in or debentures oI, the
company; and
(d)Prohibits any invitation or acceptance oI deposits Irom persons other than its members,
directors or their relatives.
Where two or more persons hold one or more shares in a company jointly, they shall, Ior the
purposes oI membership, be treated as a single member.
!:-ic Company Section 3(1) (IV)]
A public company means a company which:
(a) as a minimum paid-up capital oI Iive lakhs rupees or such higher paid-up capital, as may
be prescribed; and
(b)Is not a private company,
(c) There is no restriction on the transIer oI shares, no maximum number oI members, and on
the invitation oI the general public to subscribe Ior its shares.
(d)The minimum number oI members in a public company must be seven.

MEMORANDUM OF ASSOCIATION
The Iirst important document to be Iiled with the registrar is the Memorandum oI
Association. It contains the Iundamental conditions on which the company to be incorporated. It
may be called the Charter` oI the company as it regulates the relationship oI the company with
the outside world.
It lays down the powers and objects oI a company and the scope oI the operations oI the
company beyond which the company`s actions cannot go. Anything done beyond the provisions
oI the memorandum will be ultra-vires the company. Every company must have a Memorandum
oI Association.
Contents of Memo7and:m
a. Name Clause:
It contains the name with which company is proposed to be registered. Companies Act
requires that:
(a) The name chosen should end with the word Limited` or the words Private
Limited`, as the case may be.
(b)The name should not be undesirable
(c) The name should not be identical or too similar to the name oI an already existing
company
(d)The name should not be a prohibited one
-. Registered Office Clause:
This clause states the name oI the State in which registered oIIice oI the company is to be
situated. The register oIIice must be existence Irom the day when the company starts its
business, or Irom the 30
th
day oI incorporation oI the company whichever is earlier. The
notice oI the situation oI the registered oIIice must be given to the registrar oI the companies
within 30 days oI the incorporation oI the company.
c. O-ects Clause:
This clause is to be divided into:
Main objects and objects incidental or ancillary to main objects
Other objects
A company cannot commence any business stated under other objects unless special
resolution` by the shareholders is passed.
#estrictions:
There are some restrictions Ior a company while Iraming its objectives which are as Iollows,
The objects must not be illegal or against the public policy (e.g.: Iormed Ior conducting
lotteries, trading with enemy etc.)
Object should be against the provisions oI the Companies Act
The objects should not be against the general law oI land (e.g.; gambling)
Purpose oI objects clause;
It inIorms the members, the kind oI business in which their money may be used.
It inIorms the persons dealing with company, the powers oI the company. It provides
degree oI protection to the creditors who can ascertain the powers oI the company.
It also serves the public interest, as the activities oI the company are conIined to a deIined
Iield and the company cannot go beyond these activities.
d. Lia-ility Clause
This explains about the liability oI the company and Ior the members. The liability oI the
company is unlimited and the liability oI the members is limited. It should be noted that the
company may be limited by shares, or by guarantee.
In case oI company limited by shares the liability oI a member is limited to the nominal value oI
shares held. II the shares ore partly paid, the liability is limited to the amount which remains
unpaid, and iI the shares are Iully paid the liability oI the members is nil.
In case oI company limited by guarantee, the liability clause states that every member undertakes
to contributes to the assets oI the company, when the company gets winding up.
e. Capital Clause
This clause oI Memorandum oI Association states the amount oI share capital with which the
company is to be registered. This clause should also state the number oI shares and the value oI
shares into which the capital oI the company is divided. The capital with which the company is
registered is registered` , nominal` or authorized capital`. A company cannot issue more shares
than are authorized by its Memorandum oI Association, except by altering the memorandum.
f. Su-scription or Association clause
The Subscription or Association clause contains the names oI the persons who sign the
memorandum and states that they are willing to Iorm themselves into a company. These persons
are called subscribers It must be signed by each and every member with name, address,
description, occupation, and number oI shares hold, in the presence oI at least one witness who
must attest the signatures.
ALTERATION OF MEMORANDUM
Various clauses oI memorandum oI association can be altered by Iollowing the procedure laid
down in the Act. DiIIerent requirements are prescribed Ior diIIerent clauses:
1. Name Clause: can be altered by:
Passing a special resolution; sec 21
Passing ordinary resolution; sec 22(1) (a)
Obtaining the approval oI the Central Government in writing.
ew certiIicate oI incorporation sec 23(1)
2. Registered Office Clause: may be shiIted:
Passing special resolution
ConIirmation by company law board
Modes:
4 Change within the same city
4 Change within the same state
4 Change oI registered oIIice Irom one state to another.
When registrar oIIice is shiIted to the new location, then the notice oI the same must be given to
the registrar oI companies within 30 days oI the shiIting oI the register oIIice.
It is to be noted that shiIting oI the register oIIice Irom one state to another is allowed only iI it is
necessary Ior any one oI the Iollowing purposes are mentioned in sec 17(1)
To carry the business more economically or more eIIiciency
To attain its main purpose by new or improved means
To enlarge or change the local area oI its operation
To restrict or abandon any oI the objects speciIied in the memorandum
To sell or dispose oI the whole or any part oI undertaking oI the company
To amalgamate with any other company or body oI persons
To carry on some business which under existing circumstances, may conveniently
or advantageously be combined with the business oI the company.
Legal provisions in respect oI change oI register oIIice Irom one state to another,
a. The special resolution passed by the company must be Iiled with the registrar oI
companies within one month Irom the date oI such resolution |sec 18(1)(a)|
b. The certiIied copy oI the order oI the central government, conIirming the alteration must
be Iiled with the registrar oI the companies oI both the states. There aIter the registrar oI
each state shall register the alteration. |section 18(3)|
c. The registrar oI the state where the oIIice was originally situated shall send to the
registrar oI the other state all records and documents relating to the company | Section
18(3)|
d. The alteration involving shiIting oI the register oIIice Irom one state to another shall not
have any eIIect unless it is registered as per the provisions oI the Section 18.
e. The registered oIIice oI the company is shiIted to its new location, the notice oI the same
must be given to the registrar oI companies within 30 days oI the shiIting oI the oIIice
|section 146(2)|
3. O-ects Clause
Special #esolution
By Iiling the Special #esolution with the registrar oI the companies within one month
Irom the date oI such resolution | Section 18(1)(a)|
it is to be noted that the company is authorized to alter the object clause oI the memorandum
iI it is necessary Ior any one oI the Iollowing purposes are mentioned in sec 17(1)
To carry the business more economically or more eIIiciency
To attain its main purpose by new or improved means
To enlarge or change the local area oI its operation
To restrict or abandon any oI the objects speciIied in the memorandum
To sell or dispose oI the whole or any part oI undertaking oI the company
To amalgamate with any other company or body oI persons
To carry on some business which under existing circumstances, may conveniently
or advantageously be combined with the business oI the company.
. Alteration of lia-ility Clause:
The company cannot alter the liability clause oI its memorandum so as to increase the
liability iI the members. It can be increased only iI the concerned person gives in writing. The
liability may also be altered so as to make the liability oI the directors or manger unlimited.
The company may alter the liability Clause by passing a special resolution. But such alteration
applies to the directors or manger who shall be appointed aIter the alteration. Thus the liability oI
the members, directors or manager cannot be increased without the consent oI the concerned
persons.
5. Alteration of Capital Clause:
The company can alter the capital clause oI its memorandum by adopting the procedure
prescribed in the companies Act. It may be noted that the company can alter it capital only iI it is
so authorized by its Articles oI association`. Alterations can be made by passing an ordinary
resolution and certain by a special resolution.
ollowing types oI alterations can be made simply by passing an ordinary resolution:
Increase oI share capital by issue oI shares.
Consolidation or sub-division oI existing shares into shares oI larger or smaller
amount.
Conversion oI Iully paid shares into stock and conversion oI stock into Iully paid
shares.
Cancellation oI unissued shares.

ARTICLES OF ASSOCIATION
The article oI association oI a company is the second important document which has to be Iiled
with the #egistrar at the time oI registration oI the company. This document contains the rules
and regulations and bye-laws Ior internal management oI the Company.
The articles oI association are a subordinate and controlled by the memorandum oI association`.
It lays down the objects and powers oI the company given by the memorandum oI association. It
lays down the modes in which the objects oI the company are to be carried out by the members.
The rules and regulations must not be contrary to the provisions oI the Companies Act.
Companies must have Articles to state the total number oI members and Share capital.
The article oI association is obligatory i.e. legally compulsory Ior the Iollowing companies
(Section 26):
Private limited companies
&nlimited Companies
Public Companies limited by Guarantee
o A7tice Company
A public limited company having share capital may be registered without Articles.
Important provisions wherein the company can act only iI authorized by its articles:
To issue redeemable preIerence shares
To accept calls in advance Irom shareholders
To increase share capital
To consolidate and divide its share capital into shares oI larger amount than existing
shares.
To convert its Iully paid-up-shares into stock and to reconvert that stock into Iully paid
up shares
To sub-divide its shares into shares oI smaller amount that is Iixed by the memorandum
To reduce its share capital
Contents of Articles of Association:
DeIinition oI important terms and phrases
Adoption oI pre-incorporation contracts
Share capital and the rights oI the shareholders
Allotment oI shares
Procedure as to making oI calls on shares
Procedure as to IorIeiture the shares
TransIer oI Shares
Lien on Shares
Share CertiIicate and Share Warrants
Alteration oI Share Capital
Conversion oI Shares into Stocks
Dividend reserves and Capitalization oI proIits
Appointment oI managerial personnel eg directors etc
Meetings
Borrowing powers
Accounts and audit
Common seal oI the company
Voting rights and proxies
Winding up oI the companies
The exclusion, total or partial, oI Table A oI schedule I oI the Companies Act
The articles oI association oI a private company must also contain the three statutory restrictions
which make the company a private one they are,
#estrictions on transIer oI shares
#estrictions on membership i.e. maximum number should not exceed 50and minimum
must be 2.
#estrictions on issue oI prospects i.e. prohibition on invitation to the public to subscribe
Ior shares or debentures



Ate7ation of A7tices
Articles oI association may be altered by a company by passing special resolution at a general
body meeting oI shareholders.
owever, where alteration has the eIIect oI converting a public company into a private company
(Section 3(1)),
The alteration which has the eIIect oI increasing the remuneration oI any director, including a
managing or whole time director
A company can alter its articles as a matter oI aright and this power oI the company cannot be
taken away in any manner. There is a clause in the articles providing that the company will not
alter its articles, the clause will be invalid on the ground that it is contrary to the companies Act.
Doct7ine of Const7:ctive otice
According to Section 610, every person dealing with the company is deemed to have read M/A
and A/A and understood the contents thereoI in the correct perspective.
Doct7ine of Indoo7 Management
The rule was Iirst laid down in #4al British Bank v. Turquand.
#ule oI Indoor Management is an exception to the Doctrine oI Constructive notice.
ceptions of Indoo7 Management
1. nowedge of i77eg:a7ity : Case: H4ard v. Patent Iv4r C4.
2. egigence : Case: nand Behari Lal v. Dinsha & C4. (Bankers) Ltd.
3. o7ge7y : Case: #uben v. Great Fingal C4ns4lidated |Secy. orged signatures oI two
directors|
4. o knowedge of a7tices : Case: #ama C4rp4rati4n v. Pr4ved Tin & General
Investment C4.





FORMATION OF A COMPANY
The whole process oI Iormation oI a company may be divided into Iour stages, namely:
Promotion stage
Incorporation stage
Commencement stage
!7omotion Stage
ho is a Promoter?
A Promoter is one 'who undertakes to Iorm a company with reIerence to a given object and to
set it going and who takes necessary steps to accomplish that purpose.
The promoter is a person who brings a company into existence. e decides the scope oI its
business activities.. They provide the registration Iees and carryout other duties involved in the
Iormation oI a company. They also make arrangements Ior advertising and circulating the
prospectus, and placing the capital. Promoter may be an individual, a Iirm or a body corporate.
ega !osition of a !7omote7:
'The Promoter oI a company stand undoubtedly in a Iiduciary position. They have in their hands
the creation and moulding oI the company. They have the power oI deIining how and when and
in what shape and under what supervision, it shall start into existence and begin to act as a
trading corporation.
4 ot allowed to make any Secret proIits.
4 ot allowed to make ProIit Irom sale oI his own property to the company unless all
material Iacts are disclosed.
4 Disclosure must be made to (a) to an independent board oI directors, or (b) in the articles
oI association, (c) in the prospectus, or (d) to the existing and intended shareholders
directly.
4 Should not make an unIair or unreasonable use oI his position.
Functions of Promoters:
4 To originate an idea oI starting a business and Iorming a company
4 To investigate the idea and to know whether the Iorming oI the company is possible and
proIitable
4 To collect the requisite number oI persons necessary Ior the Iormation oI the company
and to Iind out the Iirst directors
4 To settle the name oI the company
4 To settle the details oI the memorandum` and articles oI association oI the company and
to ge these documents draIted and printed and to arrange Ior the registration oI the
company.
4 To arrange Ior the preparation oI the prospectus and its issue
4 To enter into preliminary contracts
4 To pay preliminary expenses
4 To arrange Ior the loan etc. Irom various Iinancial institutions
4 To perIorm such other Iunctions as are necessary Ior the Iormation oI the company.
4 To conduct the negotiations Ior the purchase oI business where it is intended to purchase
an existing business
Duties and o-ligations of Promoters:
O The promoters must make directly or indirectly any secret proIits at the expense oI the
company which they are promoting. II they do so, the company may recover the same
O The promoters must disclose Iully all the materials Iacts regarding the Iormation oI the
company
O The promoters must not make unIair use oI their position and they must disclose to the
company their true position
O e must IaithIully disclose all the Iacts relating tot the property which they wants to sell
to the company. They should also disclose their interest in such property. Such disclosure
oI Iacts and interest may be made in any one oI the Iollowing ways:
To an independent and competent board oI directors.
To the whole body oI persons who are invited to become the shareholders oI the
company.
In the prospectus oI the company
In the articles oI association oI the company
Remuneration of promoters:


ia-iities of a !7omote7:
Sec 56 lays down matters to be stated and report to set out in prospectus. E may be liable Ior
the non-compliance
&nder Sec 62, a promoter is liable Ior nay untrue statement in the prospectus to a person who has
subscribed on Iaith oI the prospectus. Such person can sue the promoter Ior any loss or damage
sustained by him.
Section 63 imposes severe penalty on promoters who make untrue and deceptive statement s in
prospectus with a view to obtaining capital. e is criminally liable.







P7e-inco7po7ation cont7acts
'4id-ab-initi4.
owever, pre-incorporation contracts shall be valid iI:
The contract is made Ior the purpose oI the company and the contract is warranted by the terms
oI incorporation.
The company adopts the transactions aIter incorporation.
Registration/Incorporation
Private Company
Minimum umber oI Members required 2.
Pu-lic Company
Minimum umber oI Members required 7.

Steps
1. Application for availa-ility of name:
Three names in order oI priority conIorming to the provisions oI the Act and the Guidelines
issued by Department oI Company AIIairs in this regard:
ame to end with the word(s) Limited` or Private Limited`, as the case may be, except:
(i) Section 25 Companies
(ii) Govt. Companies (need not use Pvt. Ltd.)
(iii) Producer Companies.
ame should not be identical or too similar to the name oI an already existing company.
Should not include the name oI a registered trade mark.
2. Preparation of Memorandum and Articles of Association
Memorandum deIines and limits the scope oI activities oI a company.
Contents of Memo7and:m
1. ame clause
2. #egistered oIIice clause
3. Object clause
Doctrine oI ultra-vires
1. Liability clause
2. Capital clause
3. Preparation of other documents
Power oI Attorney in Iavour oI a proIessional to eIIect registration.
Consent oI Directors (in case oI a Public Company)
Particulars oI Directors, Manager, Secretary, etc. in the prescribed Iorm.
otice oI registered address
To be supplied within 30 days oI incorporation.
$tatut4r Declarati4n
To the eIIect that all requirements oI law with respect to incorporation have been duly complied
with.
The declaration to be signed by:
Advocate oI Supreme Court or igh Court; OR
C.A../C.S. practising in India and associated with the Iormation oI the company; OR
Director, Manager, Secretary oI the company (as named in the Articles)
. Filing of documents with ROC
Ce7tificate of Inco7po7ation
Effect of Certificate of Incorporation (Section 3)
On incorporation, the association oI persons becomes a body corporate by the name contained
in the memorandum, capable Iorthwith oI exercising all the Iunctions oI an incorporated
company and having perpetual succession and a common seal but with such liability on the part
oI the members to contribute to the assets oI the company in the event oI its being wound-up as
is mentioned in the Act.
Conc:siveness of Ce7tificate of Inco7po7ation (Section 35)
Conclusive to the eIIect that all requirements oI law relating to registration and matters precedent
and incidental thereto have been duly complied with.
!7ovisiona Cont7acts
Contracts entered into by company aIter incorporation but beIore getting the certiIicate to
commence business are called provisional contracts`.
Provisional contracts are, thereIore, relevant to public companies only.
Such contracts become void, iI company Iails to obtain certiIicate to commence business and
automatically become valid, and binding iI company obtains the certiIicate.
Raising of Capita
A company may raise capital through
Private placement
Issue oI Prospectus
Private placement means raising oI capital Irom Iriends, relatives and through brokers.
Commencement of Business (Section 19)
here Company has issued a Prospectus:
a company cannot commence business or exercise borrowing powers unless:
(a) shares up to the amount oI the minimum subscription have been allotted by the company;
(b) every director oI the company has paid to the company, on each oI the shares taken or
contracted to be taken by him and Ior which he is liable to pay in cash,
Commencement of Business
The same proportion as is payable on application and allotment on the shares, oIIered Ior
public subscription;
(c) o money is, or may become, liable to be repaid to the applicants Ior shares or debentures
oIIered Ior public subscription, Ior Iailure to obtain permission Ior the shares to be dealt in on
any recognized stock exchange;
Commencement of Business

(d) there has been Iiled with the #egistrar a duly veriIied declaration by one oI the directors or
the secretary or, where the company has not appointed a secretary, a secretary in whole time
practice in the prescribed Iorm that clauses (a), (b) and (c) (mentioned above) have been
complied with.
Penalty:
Every person at Iault may be Iined up to #s.5, 000/- Ior every day oI deIault.

!ROS!C1US
A prospectus, as per Section 2(36), means any document described or issued as prospectus and
includes any notice, circular, advertisement or other document inviting deposits Irom the public
or inviting oIIers Irom the public Ior the subscription or purchase oI any shares or debentures oI
a body corporate.
Thus, a pr4spectus is n4t merel an advertisement, it ma be a circular 4r even a n4tice.
d4cument shall be called a pr4spectus if it satisfies t4 things.
(a) It invites subscripti4n t4 shares 4r debentures 4r invites dep4sits.
(b) The af4resaid invitati4n is made t4 the public.
at constit:tes Invitation to !:-ic
As per Section 67, Invitation to public includes:
invitation to any section oI the public howsoever selected provided the invitation is made to all
the members oI that section oI public indiscriminately.
Invitation calculated to be made available even to those who do not receive the same.
Invitation to 50 or more persons.
Mis-statement in a !7ospect:s and its conseq:ences
hat is Mis-statement?
According to Section 65(1) oI the Act:
(a) a statement included in a prospectus shall be deemed to be untrue, iI the statement is
misleading in the Iorm and context in which it is included; and
(b) where the omission Irom a prospectus oI any matter is calculated to mislead, the
prospectus shall be deemed in respect oI such omission, to be a prospectus in which an untrue
statement is included. Case: #ex v. Klsant
Remedies
Sa7e and Sa7e Capita
According to Section 2(46), A Share` represents a unit into which capital oI a company is
divided. owever, courts have held that a share is not merely a unit oI capital, it represents a
bundle oI rights and obligations. older oI a share is entitled to certain rights (say, right to
receive dividends, to receive notice oI meetings, to participate in the proceedings oI a meeting, to
elect directors) and is also subjected to a number oI obligations (say, to abide by Articles oI
Association, to maintain decorum oI the meetings).
inds of Sa7es
The Iollowing kinds oI shares may be issued by a company:
1. Equity shares carrying voting rights.
2. Equity shares carrying diIIerential rights as to voting or dividend (commonly
called on-Voting Equity Shares)
3. PreIerence Shares
4. Cumulative convertible PreIerable Shares
!7efe7ence Sa7es carry preIerence with respect to two things:
1. PreIerence with respect to dividend at a Iixed rate or oI a Iixed amount.
2. PreIerence with respect to return oI capital in case oI winding up.
q:ity Sa7es means a share which is not a preIerence share.
Aotment of Sa7es
Allotment` is an acceptance to an oIIer Ior purchase oI shares.
Where allotment does not conIorm to the statutory requirements, it is called irregular allotment.
or allotment to be valid, Iollowing requirements must be satisIied:
1. A copy oI prospectus or statement in lieu oI prospectus must have been delivered
to #egistrar oI Companies.
2. Application money must not be less than 5 oI the nominal value.
3. Minimum subscription (i.e., at least 90 oI the issue) must have been received.
4. Application money must be kept deposited in a Scheduled Bank till the minimum
subscription has been received.
5. Shares must have been listed on the stock exchange(s) mentioned in the Prospectus.
Administ7ation/Management of a company
A company Iunctions through the medium oI Board oI Directors. owever, certain powers have
been reserved to be exercised by shareholders in general body meetings. Section 291 oI the
Companies Act, 1956 conIers general power on the Board oI Directors. It provides: 'Subject to
the provisions oI the Act, the Board oI Directors oI a company shall be entitled to exercise all
such powers, and to do all such acts and things, as the company is authorized to exercise and do.
!owe7s wic a7e ee7cisa-e ony -y te sa7eode7s
1. Sell, lease or otherwise dispose oI the whole, substantially the whole, oI the undertaking oI
the company, or where the company owns more than one undertaking, oI the whole or
substantially the whole, oI any such undertaking.
2. #emit or give time Ior the repayment oI any debt due by a director except in the case oI
renewal or oI continuance oI an advance made by a banking company to its directors in the
ordinary course oI business.
3. Invest, otherwise than in trust securities, the amount oI compensation received by the
company in respect oI compulsory acquisition oI any property or Iixed assets oI the company.
4. Borrow monies exceeding the aggregate oI the paid-up capital oI the company and its Iree
reserves. Borrowing` does not include temporary loans (i.e., loans payable on demand or within
six months but excluding loans Ior capital expenditure) obtained Irom the company`s bankers in
the ordinary course oI business.
The resolution passed at the general meeting must speciIy the total amount up to which
moneys may be borrowed by the Board oI directors in any Iinancial year.
5. Contribute in any year, to charitable and other Iunds not directly relating to the business oI the
company or the welIare oI its employees any amount exceeding #s. 50,000 or Iive per cent oI its
average net proIits oI the last three Iinancial years, whichever is higher.
owever, the resolution must speciIy the total amount that may be contributed by the Board oI
directors in any Iinancial year.
owever, contributions to ational DeIense und, the Prime Minister`s ational #elieI und or
any other Iund approved by the Central Government* Ior the purpose are exempted Irom the
above provisions.
":aifications and Disq:aifications fo7 Di7ecto7s
"ualifications
A public company cannot prescribe any qualiIications Ior directorship except share qualiIication.
Again, share qualiIication requirement cannot exceed holding oI shares exceeding #s. 5000/- in
nominal value or value oI one share where nominal value oI one share exceeds #s.5000/-. A
director may obtain his share qualiIication within 2 months aIter his appointment.
Disqualifications
Section 274 oI the Companies Act, 1956 provides that the Iollowing persons shall not be
capable oI being appointed as directors oI any company :
(a) a person Iound by a competent court to be oI unsound mind and such Iinding remaining in
Iorce;
(b) an undischarged insolvent;
(c) a person who has applied to be adjudged an insolvent;
(d) a person who has been convicted by a Court oI an oIIence involving moral turpitude and
sentenced in respect thereoI to imprisonment Ior not less than six months, and a period oI Iive
years has not elapsed Irom the date oI the expiry oI the sentence;
(e) a person who has not paid any call in respect oI shares oI the company held by him, whether
alone or jointly with others and six months have elapsed Irom the last date Iixed Ior the payment
oI the call; and
(g) A person who is already a director oI a public company which,
(i) has not Iiled the annual accounts and annual returns Ior any continuous three Iinancial years
commencing on and aIter the Iirst day oI April, 1999; or
(ii) has Iailed to repay its deposit or interest thereon on due date or redeem its debentures on due
date or pay dividend and such Iailure continues Ior one year or more.
:m-e7 of Di7ecto7sips
hole-time Directorship
A person cannot be appointed as a whole-time director in more than one company.
Part-time Directorship
ot more than 15 companies excluding the directorships oI,
i. Private companies |other than subsidiaries or holding companies oI public company(ies)|.
ii. unlimited companies,
iii. associations not carrying on business Ior proIit or which prohibit payment oI a dividend,
and
iv. Alternate directorships (i.e., he is appointed to act as a director only during the absence or
incapacity oI some other director).
Doctrine of Ut7a-Ji7es
Case Law: shbur #l. Carriage C4. v. #iche.
Effects of Ut7a-vi7es t7ansactions
(i) v4id-ab-initi4
(ii) Injunction
(iii) Personal liability oI directors
towards the company
towards the outsiders
Contents of Memo7and:m