Sessions 06 - 10

Companies Act
2013

1
 Forms of business in India

Partne
rship
Proprietary
HUF

AoP
CORPORTE

• Company – Indian/Foreign
• LLP
• Society Diligently
• Co-operative
• Regularly, Consistently
Statutory Corpn.
BUSINESS
• Gazette Deployment of Capital –
PROFIT Human, Economic &
Financial

2
 Business risks

1. Legal risk – legal challenges and changes in laws

2. Regulatory risk- regulatory architecture and
infrastructure
3. Social risk –social attitudes and perceptions
4. Direct environment risk – environmental risks
impacting business
5. Political risk – political instability
6. Indirect environment risk – indirect environmental
risk for business
7. Natural risk – natural calamities
3
 Advantages Of Corporate form of Enterprise

• Corporate personality (juristic person)

• Limited liability
• Perpetual succession
• Transferable shares
• Separate property
• Capacity to sue
• Flexibility and Autonomy

DOCTRINE OF CORPORATE PERSONALITY

CASE EXAMPLE –
Salomon Vs Salomon & Co. Ltd. (1897) 4
 Types of Companies –
on the basis of
LIABILITY
• Limited liability • Liability restricted to FV of share
• Limited by • Liability restricted to Guarantee
Guarantee
• Unlimited • Liability is unlimited
Liability
OWNERSHIP
• Govt. Company • CG/SG hold >51% of PUC
• Pvt. Sector Co. • Other than above companies
PLACE OF INCORPORATION
• Foreign • Company incorporated outside
Company India
• Indian Company • A company incorporated under
(Indian) CA 2013 5
 Distribution of Profit

Section 8/Charity Co./ Profits ploughed back, not distributed as

Exempted Co./ Licence dividend; Licence from RD; Exempted
Company from suffixing `Ltd.`; Social welfare

CHARACTER
Private Ltd Company 1. Restricts transfer of shares
Min. 2. Limits No. of member to 200
(excluding – employees/ex-employees)
Shareholders - 02 3. Prohibits –
Directors - 02 i. Issuing shares to public
ii. Inviting /Renewing Deposits from
Public

Public Ltd. Co. No prohibition/restriction as above in

Min. private ltd. Company
May be Listed in Stock Exchanges or
Shareholders - 07 Unlisted
Directors - 03
6
 HOLDING AND SUBSIDIARY COMPANY
• Holding Company [Sec. 2 (46)] - relation to one or more other companies, means a company of which such
companies are subsidiary companies
• "subsidiary company" or "subsidiary “ [Sec. 2 (87)], in relation to any other company (that is to say the
holding company), means a company in which the holding company—
i. controls the composition of the Board of Directors; or
ii. exercises or controls more than one-half of the total voting power either at its own or together with one or
more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of
subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
• a company shall be deemed to be a subsidiary company of the holding company even if the control referred to
in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
• the composition of a company's Board of Directors shall be deemed to be controlled by another company if
that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or
a majority of the directors;
• A company (Company `X`) shall be deemed to be a holding of the other company (Company `Y`) only if
When the first company (Company `X`)
a) Controls composition of BOD of second company (Company `Y`); or
b) controls or exercises control more than half (50% + one share) of voting power of second company
(Company `Y`); or
c) holding company of another third company (say Company `Z`). And the third Company (Company `Z`) is
the holding company of second mentioned company (Company `Y`). 7
 PUBLIC FINANCIAL INSTITUTIONS
(Sec. 2 (72)]
1. Life Insurance Corporation of India;
2. Infrastructure Development Finance Company Limited,;
3. specified company referred to in the Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002;
4. institutions notified by the Central Government under sub-section (2) of
section 4A of the Companies Act, 1956 (1 of 1956) so repealed under section 465
of this Act;
5. such other institution as may be notified by the Central Government in
consultation with the Reserve Bank of India:
• Provided that no institution shall be so notified unless—
i. it has been established or constituted by or under any Central or State Act
other than this Act or the previous company law]; or
ii. not less than 51% of PUC is held or controlled by the Central Government or
by any State Government or Governments or partly by the Central Government
and partly by one or more State Governments;
8
• "associate company“ [Sec. 2 (6)]- in relation to another company,
means
 a company in which that other company has a significant influence,
but which is not a subsidiary company of the company having such
influence and includes a joint venture company.

• Explanation.—For the purpose of this clause,—

a) "significant influence" means control of at least 20% of total voting
power, or control of or participation in business decisions under an
agreement;
b) "joint venture" means a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of
the arrangement;
Clarification - shares held by a company in another company in a 'fiduciary
capacity' shall not be counted for the purpose of determining the
relationship of 'associate company' 9
Dormant Company[Sec. 455]
• Where a company is formed and registered under this Act
i. for a future project or to hold an asset or intellectual property and
ii. has no significant accounting transaction,
• such a company or an inactive company may make an application to the Registrar in
such manner as may be prescribed for obtaining the status of a dormant company.

• Explanation.—For the purposes of this section,—

i. “inactive company” means a company which has not been carrying on any business
or operation, or has not made any significant accounting transaction during the last
two financial years, or has not filed financial statements and annual returns during
the last two financial years;

ii. “significant accounting transaction” means any transaction other than—

a) payment of fees by a company to the Registrar;
b) payments made by it to fulfil the requirements of this Act or any other law;
c) allotment of shares to fulfil the requirements of this Act; and
d) payments for maintenance of its office and records. 10
ROC
a) on consideration of the application [Form MSC-1] shall allow the status of a dormant
company to the applicant and issue a certificate in [Form MSC-2].
b) shall maintain a register of dormant companies in such form as may be prescribed.
c) shall issue a notice to that company and enter the name of such company in the register in
case of a company which has not filed financial statements or annual returns for two
financial years consecutively, and enter the name of such company in the register
maintained for dormant companies.
• A dormant company shall have 3 directors in case of a public company, 2 directors in case of
a private company and one director in case of a OPC.
• Rotation of auditors shall not apply; pay prescribed annual fee

Becoming Active Company

i. Application to ROC in Form MSC – 4 along with return in Form MSC-3 regarding F/Y
ii. suo motu by RoC - if the company remains as a dormant company for a period of consecutive
5 years.
iii. RoC may also cause inquiry
iv. RoC certificate in Form MSC-5 allowing the status of an active company

• The Registrar shall strike off the name of a dormant company from the register of dormant 11
companies, which has failed to comply with the requirements of this section.
• "One Person Company" [Sec. 2 (62)] - a company which has only one person as
a member (natural person, resident of India, citizen of India)
• Name of the company shall be mentioned, the word “One Person Company” must
be written in the “( )” [ADHIKARI AGRO INDUSTRIES (OPC) PRIVATE LIMITED]
• OPC may be either a Company limited by share or a Company limited by
guarantee or an unlimited Company.
• Restrictions
a) OPC cannot be incorporated or converted as a Charitable company
b) OPC cannot engage in Non Banking Financial Investment” activities including “investment” in securities
of anybody corporate
c) A person cannot incorporate or be a nominee of more than 1 OPC

• An OPC limited by shares shall comply with following requirements:

i. Shall have minimum PUC of ₹ 1 lakh
ii. Restricts the right to transfer its shares.
iii. Prohibits any invitations to public to subscribe for the securities of the
company.

12
• A company may be formed by one person by subscribing his/her
name to a memorandum. [Sec. 3 (1)(c)]
• There shall be a nominee for the sole member of a OPC
• The memorandum shall indicate name of the other person
(nominee), who shall, in the event of the subscriber’s death or his
incapacity to contract become the member of the company.
• Written consent from nominee to be filed at the time of registration
of OPC
• Such nominated person may withdraw his consent at a future date.
• Even the member has the right to change nominee.
• In case a nominated person withdraws, dies or is incapacitated to
contract - member shall within 15 days thereof, nominate a new
person and send an intimation to the company, file with RoC within
30 days along with Consent
13
Advantages of OPC
• Cash Flow statement is not mandatory for One Person Company. (Section 2 (40))
• Annual Return shall be signed by CS or where there is no CS, by the Directors (Section 92)
• Not compulsory to call AGM (Section 96)
• The provisions of Section 174 (Quorum for meetings of Board) will not apply
• An individual who is member shall be deemed as first director until the director or directors are duly
appointed by the members according to the provisions of the Act. (Section 152)
• Board Meeting - one meeting in each half of a calendar year and gap between two meetings should
not be less than 90 days
• File its Financial Statement along with necessary documents which is duly adopted by the Member
within 180 days from the date of ending of financial year/ closure of financial year
• Where there is only one director, all the businesses to be transacted at the meeting of the Board shall be
entered into minutes book
• Minutes book shall be signed and dated by the director and the resolution shall become effective from
the date of signing such minutes by the director {applicable to BM and GM]

Conversion into Pvt. Ltd or Public Ltd.

• Voluntarily - By increasing no. of members to 2 & 2 Directors or 7 Members & 3 Directors as the case
may be. But not before 2 years of incorporation.
• Alter its memorandum by passing a resolution U/s 122(3)
• Event Based- Upon any of the following conditions:
i. PUC > 50 Lacs
ii. Average Annual T/o of preceding three years > 2Cr. Should covert within 6 months of - day PUC crosses 50 Lacs the
14
last day of the third year.
 PRODUCER COMPANY
• PART IXA CHAPTER I: PRODUCER COMPANIES Sec. 465 l)
"Producer Company" means a body corporate having objects or
activities specified in section 581B (CA 1956) and registered as
Producer Company under this Act
• Objects of the Producer Company shall relate to all or any of the
following matters for the benefit of Members:
(a) production, harvesting, procurement, pooling, handling,
marketing, export/importing of primary produce
(b) processing including preserving, drying, distilling, brewing,
vinting, canning and packaging of produce;
(c) manufacture, sale or supply of machinery, equipment or
consumables
(d) providing education on the mutual assistance 15
(e) rendering technical services, consultancy services,
training, research and development and all other activities
(f) generation, transmission and distribution of power,
revitalisation of land and water resources
(g) insurance of producers or their primary produce ;
(h) promoting techniques of mutuality and mutual assistance
;
(i) welfare measures or facilities
(j) any other activity, ancillary or incidental to any of above
activities
(k) extending of credit facilities or any other financial services
to its Members
16
 • Any company or association or
partnership carrying on business
Illegal Association (in banking or otherwise) with
100 more persons [prohibited to
carry such business]

Doctrine of ultra vires To protect investors

Ultra – beyond • To know for purpose which their money
vires – powers is employed
[Beyond the powers] • To ensure that company funds are not
dissipated for unauthorized purpose

Doctrine of constructive • MOA & AOA when registered

notice • onus on people to know powers of the
Company
Doctrine of Indoor Gateway of Internal Irregularity
Management Exception – Forgery
17
 Steps for Incorporation

a) Name Approval by ROC (Validity 3 + 3 months)

b) Preparation of draft MOA and AOA

c) Directors must have obtained DIN

d) Printing, Signature and stamping thereof

e) Digital filing with DIN of Directors

f) Power of Attorney
g) Filing of prescribed documents with ROC along with
Registration and Filing fees
• Certificate of Incorporation (COI) – Conclusive
evidence
• Commencement of Business [COB] 18
 Contracts
• Pre-incorporation or Preliminary Contracts –
o contracts entered into by the Promoters before
incorporation of the Company and adopted by
the newly incorporated company
o Such contracts are enforceable against the new
company by third parties [Sec. 19 of Specific
Relief Act]
• Provisional Contracts
o Contracts entered into by a public ltd
company after obtaining Certificate of
Incorporation but before COB 19
 Contents Of MoA
[Sec 4]

Clause I Name Clause

Clause II Situation/Registered Office Clause

Clause III Objects for which the company

is proposed to be incorporated
and any matter considered
necessary in furtherance thereof

Clause IV Liability Clause

Clause V Capital Clause

21
 Prospectus

Any document
• Inviting offers from Public for subscribing to
securities of a Body Corporate
• described /issued as prospectus

Laws governing issue of Prospectus

• Companies Act 2013
• SEBI Act 1992
• SEBI (Issue of Capital and Disclosure ) Regulations
2009
• Depositories Act 1996
22
 Issue of Securities – applicable laws

• Companies Act 2013

• SEBI Act 1992
– SEBI ICDR 2009
– SEBI LODR 2015
– SEBI (Intermediaries) Regulations
• Depositories Act 1996
• FEMA 1999

23
 Types of offer documents
Red Herring Prospectus (thru Book Building)
• Initial Public Offering
• Non-compliant to SEBI (ICD)Regulations 2009
Prospectus
• Follow-on Issue (Fast Track Issue)
Shelf Prospectus
• Banks/FIs
Letter of Offer
• Rights issue/Offer for Sale
• Buy back/Delisting
• Acquisition of shares 24
 Shares and its Kinds
Sec. 2 (46) - A share in the Share capital of Company
A right to participate in
• profits of a company, when dividend is declared
(`Going Concern`)
• assets of the company, when wound up
Preference Share Equity Share
• Fixed dividend in preference to • Right to participate in
equity; profits of Co., if declared
• Preferential right in winding up

Types Types
• Cumulative Preference shares • With Voting rights
• Non- Cumulative Preference • With Differential rights
shares
25
 Fund Raising in a Company at Different Stages

Depository Receipts with the underlying being Shares, Foreign

Currency Bond convertible into shares, Depository receipts with
the underlying being shares.

PCD / Strategic
FCD GDR, FCCB Investment
QIP & ADR
FIIs, FI, Banks, Rights
Insurance Cos, MF, Warrants / Customer, Supplier,
Issue FII, Hedge
HNI, Individuals Follow-on Competitor
FCD / PCD QIB funds and FII,
including NR Public Existing
Private US QIB
Issue Shareholders
Placement
PE Investors IPO FIIs, FI, Banks,

Private Promoters, Financial Insurance Cos, MF,

Investor, Strategic HNI, Individuals
Equity including NR
Investor
Shares

Venture
Capital Venture
Capitalist IPO:
IPO: Initial
Initial Public
Public Offer
Offer

QIP: Qualified
QIP: Qualified Institutions
Institutions Placement
Placement
Seed GDR:
GDR: Global
Global Depository
Depository Receipts
Receipts
Capital
FCCB:
FCCB: Foreign
Foreign Currency
Currency Convertible
Convertible Bond
Bond
Personal Contribution, ADR:
ADR: American
American Depository
Depository Receipts
Receipts
Family, Friends, Angel
Investors

27

Initial Public Offer
An Offer of SPECIFIED
SECURITIES by an unlisted
issuer to the public for
subscription and includes
offer for sale of specified
securities to the public by
any existing holders of such
securities in an unlisted
issuer.
Applicability: SEBI ( ICDR)
Regulations, 09.
QIP
A designation of a securities
issue given by the Securities
and Exchange Board of
India (SEBI) that allows an
Indian-listed company to raise
capital from its domestic
markets without the need to
submit any pre-issue filings to
market regulators. ( Circular
issued on May 8, 2006).
Applicability: SEBI ( ICDR)
Regulations, 09.
FUND RAISING OPTIONS
Rights issue
An offer of SPECIFIED
SECURITIES by a listed issuer
to the shareholders of the
issuer as on the record date
fixed for the said purpose.
Applicability: SEBI ( ICDR)
Regulations, 09.
Preferential Allotment
An issue of SPECIFIED
SECURITIES by a listed issuer
to any select person or group
of persons on a private
placement basis and does not
include an offer of specified
securities made through a
public issue, rights & bonus
issue, ESOP, ESPS or QIP or
sweat equity or Depository
receipts.
Applicability: SEBI ( ICDR)
Regulations, 09.
FPO
An offer of SPECIFIED
SECURITIES by a listed
issuer to the public for
subscription and includes
an offer for sale of
specified securities to the
public by any existing
holders of such securities
in a listed issuer.
Applicability: SEBI ( ICDR)
Regulations, 09.
Debt Securities
A non-convertible debt
securities (NCD) which creates
or acknowledges
indebtedness, and include
debenture, bonds and such
other securities of a body
corporate or any statutory
body, security receipts and
securitized debt instruments.
Applicability: SEBI ( Issue and
Listing of Debt Securities)
Regulations, 08.
Bonus issues
A premium or gift, usually of
stock, by a corporation to
shareholders’ or “an extra
dividend paid to shareholders
in a joint stock company from
surplus profit.”
APPLICABILITY: SEBI (ICDR)
regulations,’09
IDR
An Indian Depository Receipt
is an instrument denominated
in Indian Rupees in the form of
a depository receipt created by
a Domestic Depository
(custodian of securities
registered with the SEBI)
against the underlying equity
of issuing company to enable
foreign companies to raise
funds from the Indian
securities Markets.
APPLICABILITY: SEBI28(ICDR)
regulations,’09
 Investor Categories

QIB means;
• A MF, VCF, FVCF Retail Investor means an
• Foreign Institutional investor investor who applies or bids
for specified securities for a
• Public Financial Institution
value of not more than
• Scheduled commercial bank Rs. 2 Lakh (as per the
• Multilateral and bilateral amendment of SEBI (ICDR)
development financial institution Reg, 09 on 12th
November,2010)
• State Industrial development
corporation
• Insurance Company
• Provident Fund ( Min Corpus 25 Cr ) Non Institutional investor
• Pension fund ( R 25 Cr ) means an investor other
•
than a retail individual
National Investment Fund
investor and qualified
• Insurance funds setup and managed institutional buyer
by the Dept of Posts, India” as per
the amendment of SEBI (ICDR) Reg, 29
09 on 12th November,2010)
 Meetings
Particulars BOARD MEETING
• Who may attend • Board of Directors
• Periodicity • One in each quarter
• Notice period • Not prescribed (15 days`SS-1)
• Place • Anywhere (preferably Regd. Office)
• Day • Any day (preferably not a National Holiday)
• Pvt. Ltd – 02; Public Ltd. - 03
• Quorum (disinterested directors)
• All items that company may discuss
• Items to be
conducted Sub Committees
a) Audit Committee
b) Investors` Grievance Committee
c) Remuneration Committee

30
Particulars AGM EGM
SHAREHOLDERS MEETINGS
• Periodicity One meeting each year Anytime
1st AGM – 18 Months of COI;
• Failure to hold Subsequent –Gap of 15 months; 6
months of close of F/Y; last day of
year

• Notice period 21 (clear) days Same

• Place City of Regd. Office Anywhere
• Day Not a National Holiday Any day
• Quorum 5 members in person Same
• Items
(1) Ordinary Business (a) To approve Annual Report; (b) To All items
declare dividend if any; (c) to are
appoint director retiring by Special
rotation; (d) appoint and fix rem. of business
Auditors

(2) Special Business All other items

31
 Directors
Sec. 2 (13) - includes any person occupying the position of director
by whatever name called
• Only individuals may be directors
• Name/Designation not important
• Functions/duties discharged is relevant

Public Co may elect Small Shareholder Director if

1) PUC < Rs. 5 Cr.
2) More than 1,000 shareholders holding shares of more than Rs.
25,000 (FV)
Consent to act as Director [Public Co.]
before appointment – with the Company
after appointment – within 30 days to ROC
Must have obtained DIRECTORS` IDENTIFICATION NUMBER
32
(DIN)
Types of Permanent Rotational Special
Directors

Authority for AOA Shareholders NCLT/CG

apptt.
Max. Nos. 1/3rd 2/3rd As per
direction
Retirement Not Each year to
Appl. retire – 1/3rd
of 2/3rd ;
longest in
office to retire
first; election
at AGM 33
Appointment Of Directors By Board In
Between AGMs

Last BOD Mtg BOD Mtg Immd. Next

AGM Next AGM

AGM
Additional Director
Director appointed in
Casual vacancy
Alternate Director
[appointed by original Director]
34
 Winding up
It is a process whereby
• the corporate life (of a company) is ended
• its property is administered for the benefit
of
o Creditors
o Members

36
Liquidation of a Company
Under IBC 2016

37
38
• Liquidation (or “winding up”) is a process by which a
company’s existence is brought to an end.
• Winding up- winding up or liquidation under the
Insolvency and Bankruptcy Code, 2016
• History - The provisions concerning to Voluntary Winding
up of Company was specified in section 304-325 of
Companies Act, 2013 although these provisions not at all
notified -Omitted from Companies Act, 2013.
• IBBI has notified the Insolvency and Bankruptcy Board of
India (Voluntary Liquidation Process) Regulations, 2017.
• With effect from 1st April, 2017 voluntary winding up shall
be conduct under Insolvency and Bankruptcy Code, 2016

39
• Liquidation Proceeding - where NCLT rejects the resolution plan, liquidation
order are passed by NCLT
• Insolvency Professionals – acts as liquidator.
• The corporate person - cease to carry on its business from the liquidation
commencement date
• Timeline for completion - 12 months from the liquidation commencement date.
• Process of Voluntary Winding up - Special Resolution by the Company passes a
Special Resolution
• Creditors Meeting – approval by 60% ; RoC and IBC to be informed
• Responsibilities of Liquidator
o Public Announcement by Liquidator - 5 days from the date of General Meeting
o to preserve a physical or an electronic copy of the reports, registers and books of
account for at least 8 years after the dissolution of the corporate person, either
with himself or with an information utility.
o submit a Preliminary Report to the Company within 45 days
o prepare the list of stakeholders within 45 days from the last date for receipt of
claims
40
o verify claims submitted within 30 days from the last date for receipt of claims
and may either admit or reject the claim, in whole or in part
o Opening of Bank Account - in the name of the corporate person followed by the
words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all
moneys due to the corporate person.
o All payments above ₹ 5,000 by cheques drawn or online banking transactions
o Proceeds from realization to be distributed within 6 months from the receipt of
the amount to the stakeholders.
o Liquidation costs shall be deducted before such distribution is made.
• Completion of liquidation - Within 1 year from the voluntary liquidation
commencement date.
• Present a Status Report along with Audited Accounts of the company
• Final Report - On completion of the liquidation process
• Suspension of liquidation proceedings – when Liquidator forms opinion that
voluntary liquidation is being done to, defraud a person
• Completion of Liquidation Process – Liquidator to make application to NCLT
for dissolution orders
41
 Initiation of Liquidation – at a glance

Where the RP, at any time during the CIRP but before confirmation of
resolution plan, intimates the NCLT of the decision of the committee of
creditors to liquidate the corporate
RP appointed debtor,
for CIRP shall NCLT
act as shall pass a liquidation
the liquidator for the order
purposes of liquidation
Duties ofunless replaced by NCLT
Liquidator
to verify claims of to take into his to evaluate the to carry on to sell the immovable
all the creditors custody or control assets and the business and movable property
all the assets, property of the of the and actionable claims of
property, effects corporate corporate the corporate debtor in
to draw, accept, and actionable debtor and debtor for its liquidation by public
make and endorse claims of the prepare a report beneficial auction or private
any negotiable corporate debtor liquidation contract
instruments in the
to take out, in his official name, letter to obtain any professional to perform
name and on
of administration to any deceased assistance from any such other
behalf of the
contributory and to do in his official person or appoint any functions
corporate debtor
name any other act necessary for professional, in discharge of as may be
obtaining payment of any money due his duties, obligations and specified
and payable from a contributory or his responsibilities
estate

42