Companies Act

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What is a company?
 An association of many persons who,
contribute money or money’s worth to a
common stock and employ it in some trade
or business, and who share the profit and
loss arising therefrom.

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Features of a Company
1. Incorporated Association
2. Separate legal Association
3. Limited Liability
4. Transferability of Shares
5. The company can sue & be sued
6. The company can purchase property &
sell property in its own name.
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Types of Companies
 Public Ltd. v/s Private Ltd.

 Listed v/s Unlisted Company

 Holding v/s Subsidiary Company

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Steps in promotion of a company :-
•Promotion:7/2 person coming together with capital
•Drafting of memorandum & articles of association
•Filing of documents with R.O.C(prior vetting may have
taken)
•Registration of name
•Certificate of incorporation
•Certificate of commencement of business (only for
public ltd)
Certificate of incorporation :- can never be cancelled by
registrar even if there were some mistake in original
documents filed with him.

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Share capital – can be Authorized capital,
issued capital , subscribed capital & paid-up
capital.
Dividend – is that part of divisible profit, which
is distributed at discretion of directors to the
shareholders.

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Lifting of the corporate veil
 Where the law disregards the corporate
entity and pays regard instead to the
individual members behind the legal façade,
it is known as lifting the veil of corporate
personality

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The corporate veil may be lifted in
the following instances
 To investigate the members of the
company.
 To investigate the company affairs where it
is used for tax evasion.
 To investigate the relation between holding
company & subsidiary company.
 Misdescription of name (L and R / L.R.)

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Formation of a Company
 Promotion Stage
 Pre-Incorporation Contracts
 Incorporation
 Commencement

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Promotion Stage
 Promotion may be defined as the discovery
of business opportunities and the
subsequent organization of funds, property
and managerial ability into business
concerns for the purpose of making profits
therefrom.

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Pre-incorporation Contracts
 Pre – incorporation contracts are those
contracts entered into between different
parties on behalf of or for the benefit of the
company prior to its incorporation.

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Incorporation (Documentation
Process)
 Type of Company & Availability of Name.
 Memorandum of Association & Articles of
Association
 Appointment letter of Director & Manager
 A statement from subscribers
 A statement from CA or Advocate
 Issuance of Certificate of Incorporation
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Commencement
 Private Companies can commence the
business after third stage

 Public companies need certificate of

commencement

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Memorandum of Association

 The memorandum of association is a

charter defining the objects & limiting the
power of a company.

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Memorandum of Association
 The Name Clause
 The Registered Office Clause
 The Object Clause
 The Capital Clause
 The Liability Clause
 The Association Clause or Subscription
Clause
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 Doctrine of Indoor Management :- According to this
doctrine , person dealing with a company in good faith ,
have a right to assume that internal requirements
prescribed by Law/Articles have been observed. They
are not suppose to enquire about regularity of internal
proceedings.
Case Law(Royal British Bank vs Turquand)
 In this case the bank refused to pay amount due to
Turquand on the grounds that the Bond has been
issued by directors, without authority as stated in
Articles. It was held that company was liable , as
Turquand was entitled to assume resolution granting
such powers to the directors must have been passed in
general meeting.

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Memorandum of Association:- As per sec.2(28) M.O.A. is principal
document of the company .It is the constitution of the company in
it’s relation with outside world .Company is bound by it’s
provisions & can’t act outside it’s powers defined in memorandum.
A company must have it’s own memorandum. It’s main clauses are
:------
•NAME CLAUSE
•ASSOCITION CLAUSE
•.OBJECTIVE
•CAPITAL CLAUSE
•REGISTERED OFFICE CLAUSE
•LIABILITY CLAUSE

CHANGE in any of these clauses requires approval of shareholders with passing

of special resolution ( with 3/4th majority) at E.G.M. as well as Company Law
Board/National company law tribunal.
 
Doctrine of Ultra-virus : The memorandum of association is the principal
document of the company & it can not do anything which is ultra-virus (outside)
to it’s memorandum . All such acts shall be wholly null & void as far as company
is concerned & can never be later ratified even if all the shareholders agree to do
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 Articles of Association :- contain the rules relating to mgmt of
internal affairs of the company. It prescribes rules & regulations
for general mgmt of the company & attainment of it’s objective in
the memorandum. A company can design it’s articles itself or
adopt them from standard format given in table A of schedule 1 of
Companies Act. The articles usually deal with following
matters----
 1. Business & capital(types of share & debentures) of the
company.
 2. Rights of every class of shareholder or debenture holder.
 3. Allotment & forfeiture of shares or debenture.
 4. transfer & transmission of shares
 5. Number appointment & powers of directors
 6. Accounts , audit & dividend etc.
 7. Procedure pf conducting meetings & related matters like notice,
quorum, voting, resolutions etc.

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Doctrine of Ultra vires
(Beyond Power)
 The director of company and company are
prohibited from going beyond powers or
MOA & AOA of company. In case they do,
they can be prosecuted and the money can
be taken back.

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Prospectus
 A document containing detailed
information about the company and an
invitation to the public for subscribing to
the share capital and debentures issued is
called prospectus

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Contents of a Prospectus

 General Information
 Capital Structure of the company
 Terms of the present issue
 Company Projects

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Statement in lieu of Prospectus
When a public company chooses to raise its
capital only from its directors, members or
their relatives then it issues a statement in
lieu of prospectus which contains the details
of share capitals filed with the registrar.

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Shelf Prospectus
 A shelf prospects means a prospects issued
by any financial institution or bank for one
or more issues of the securities or class of
securities specified in that prospectus.
 Such prospectus is valid for one year.

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Information Memorandum
 Information memorandum is issued prior to filing
of shelf prospects to communicate the changes
occurred between the first offer of securities and
current offer. Like facts relating to new charges
created, changes in the final position.

 It is also used to determine the demand & Price of

proposed securities.

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Red-herring Prospectus
 Prospectus which doesn’t have complete
particulars on the price of the securities
offered and the quantum of securities
offered.

 It must be issued at least three days before

the opening of the offer

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Process of filing shelf Prospectus
Information Memorandum

Red-herring Prospectus

Shelf Prospectus

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Various kinds of Meetings
 Statutory Meeting

 Annual General Meeting

 Extra Ordinary General Meeting

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Statutory Meeting
 For a public Ltd. Co. happens once in a life time,
not required for Pvt. Ltd. Co.
 Should be conducted within the one month of
issuing of certificate of commencement.
 A statutory report is prepared which give details
about the shares allotted, the progress with respect
to the contract of the company.
 Failure of holding the statutory report can lead to
the winding of the company.

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Annual General Meeting (AGM)

Held once in a year to adopt the final account,

appoint new auditors, elect directors,
declaration of dividend. THERE SHOULD
NOT BE A GAP OF 15 MONTHS
BETWEEN 2 AGM.

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 Extra Ordinary General Meeting
(EGM)
 Any meeting of shareholders after the AGM would
be an EGM.
 Normally called between two AGMs, this meeting
can be called by directors, can be called by court or if
10% of the shareholders make a requisition to the
board to call for an EGM.
 The board of directors must do so with in 45 days,
failing which these 10% shareholders can call the
EGM themselves
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Requisites of a valid meeting
 Notice of the meeting
 Agenda of the meeting
 Proxy
 Quorum of Meeting
 Voting
 Minutes of meeting

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Resolutions
 Ordinary Resolutions

 Special Resolutions

 Passing of resolutions by postal ballot

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Shares
 A share is a “Share” in the capital of the company.

 Share is the interest of shareholder in the

company; the right to receive dividend, attend
meetings, vote at the meeting and share in the
surplus assets of the company, if any, in the event
of the company being wound up.

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Types of Shares
1. Preference Share
2. Equity Shares

Dividend
Ownership
Voting rights
Repayment of capital
Risk
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Share Capital
 Share capital means the capital of the
company expressed in terms of rupees
divided into shares of fixed amount.

 Preference Share Capital

 Equity Share Capital

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Debentures
 A document which either creates a debt or
acknowledges it, is a debenture.

 Fixed interest is paid in every situation

 Having lower risk
 Don’t have voting rights
 Debenture holders can not get bonus
debentures
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Winding Up
 Winding up of a company is a process
whereby its life is ended and its property
administered for the benefit of its creditors
and members

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Process
 A liquidator is appointed by the court / director
and director gives the whole of the control /
affairs of the company to the liquidator at the
time of the winding up of the company.
 After utilizing all the information's liquidator
disposed the assets of the company and the
funds are utilized to pay the creditors and the
surplus is distributed among the shareholders.
Once this is over the company is said to be
dissolved.
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Modes of Winding Up
1. Winding up by Tribunal ( Court) or
Compulsory winding up

2. Voluntary Winding Up

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Winding up by tribunal
1. If the company has, by special resolution,
resolved that the company be wound up by the
tribunal.
2. If default is made by company in delivering the
statutory report to the registrar or in holding the
statutory meeting.
3. If the company doesn’t commence the business
within a year of its incorporation, or suspends its
business for a whole year.
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Winding up by tribunal
4. If the number of members is reduced, in the case
of public company below 7, and in the case of
private company below 2.
5. If the company is unable to pay its debts.
6. If the company has mad a default in filing with the
registrar its balance sheet and profit & loss
account or annual return for any five consecutive
financial year.
7. If the company has acted against the interest of the
India

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Voluntary Winding Up
 Voluntary winding up is one which is
voluntarily decided by the members or
creditors on their own level without
intervention of tribunal

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Case Study

Salomon v/s Salomon & Co. Ltd.

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