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Indian Companies Act

Indian Companies Act. 1956. A company implies an association of persons for some common object(s). According to the act :A company formed and registered under the companies act 1956 or under any previous company law. A company is a contractual entity created by the members. Companies Act, 1956.

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Indian Companies Act

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  1. Indian Companies Act 1956

  2. A company implies an association of persons for some common object(s). According to the act :A company formed and registered under the companies act 1956 or under any previous company law. A company is a contractual entity created by the members. Companies Act, 1956

  3. Incorporated Association Artificial legal Person Separate legal Entity Perpetual Succession Limited Liability Transferable Shares Common Seal Separate Property Capacity to Sue and Being Sued Characteristics of a Company

  4. A) On the basis of mode of Incorporation: Chartered Companies Statutory Companies Registered Companies B) On the basis of Liability of Members Limited by Shares Limited by Guarantee Unlimited C) On the basis on the number of members Private Public D) Others: Govt. Companies, Foreign company, Holding and subsidiary company Kinds Of Companies

  5. Distinction between private and Public Company

  6. Distinction between private and Public Company

  7. The circumstances under which the courts may lift the corporate veil are: Under Statutory Provisions Reduction of Membership Misrepresentation of Prospectus Fraudulent Conduct of Business Failure to return application money Mis-description of name Non-payment of tax Liability of ultra -Vires acts Lifting The Corporate Veil

  8. 2) Under Judicial Interpretations: For determining the enemy of the company: Daimler Company vs Continental Tyre rubber company For the Benefit of revenue-Sir Dinshaw Maneckjee Petil, Re For prevention of Fraud and Improper conduct Others Lifting of the Corporate Veil

  9. • Promotion • Registration/Incorporation • Flotation/Raising of Capital • Commencement of Business Formation and Incorporation of a Company

  10. • Promotion refers to the entire process through which a company is brought into existence. • It starts with the conceptualization of the birth of the company with an objective for which it is to be formed. • The persons who conceive the company and invest the initial funds, are known as promoters. Promotion

  11. The Promoters of the company will submit the following documents with the Registrar of Companies for the registration of company: • Memorandum of Association • The article of association • A list of persons who have consented to act as directors of the proposed company • A statutory declaration of compliance. • Any agreement with the relevant persons of the proposed company. Registration/Incorporation of Company

  12. • The Registrar of the Companies is to allot a Corporate Identity Number to each company registered on or after November 1, 2000. • After scrutiny of all the documents a certificate of incorporation is issued Registration/Incorporation of Company

  13. • A public company can take either of the following steps: • a) Issue a prospectus to invite public for subscription • b) Deliver a statement in lieu of prospectus where the company has either not issued the prospectus or it has issued the prospectus , has not proceeded to allot any shares offered to the public for subscription Flotation and Raising of Capital

  14. Every private company and a company not limited by shares can commence business immediately on receipt of certificate of incorporation. But a public company limited by shares is debarred from commencing business on borrowing money without the certificate of commencement of business 􀂙 Where a company has issued Prospectus – 􀂃 The minimum subscription in cash has been raised 􀂃 Every director of the company has paid in cash his qualification shares , a proportion payable on application and allotment on the shares offered for public subscription. 􀂃 No money is liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason for any failure to apply for, or to obtain permission for the shares of debentures to be dealt in any recognized stock exchange Commencement of Business

  15. 􀂃 A statutory declaration duly verified by one of the directors or the secretary in the prescribed form that the above conditions have been complied with, is filed with the registrar 􀂙 Where the company has not issued prospectus –it has to satisfy the following conditions: 􀂃 A statement in lieu of the prospectus if filed with the Registrar 􀂃 Every director of the company has paid in cash his qualification shares , a proportion payable on application and allotment on the shares. 􀂃 A statutory declaration duly verified by one of the directors or the secretary in the prescribed form that the above conditions have been complied with, is filed with the registrar. 􀂃 When the company has compiled with the above conditions the Registrar will issue a certificate to commence business. Commencement of Business

  16. • Meaning and Importance MOA of a company is its charter and defines the limitations of the powers of the company It is not unalterable • Content: i) Name of the Company: with ‘limited’ and ‘private limited’ as the last word(s) of the name ii) Registered Office iii) Objects of the company : main objects , Incidental and ancillary objects, other objects not included in first two. Memorandum of Association

  17. iv) Liability: A declaration is made that the liability of the members is limited. v) Capital-The amount of authorized share capital divided into shares if fixed amount vi) Association or Subscription: The initial members are called subscribers, who sign the memorandum in the presence of one witness Memorandum of Association

  18. • Article of Association of a company are its bye laws. It controls the internal management of the company and defines the powers of its offices. Articles of Association

  19. Regulations for internal Mgt Rules for carrying out the objects of Co. Subordinate to the memorandum Company limited by shares need to have it. Act ultra-vires but intra-vires the memorandum can be ratified Charter of Company Defines the scope of activities Supreme Document Must for every company Strict restrictions, some alterations may require sanction of central govt. Act ultra-vires is wholly void and can’t be ratified Difference of MoA and AoA

  20. • Ultra –Vires means beyond the powers. • Ashbury Railway Cairrageand Iron Company Ltd vs Riche Doctrine of Constructive Notice • The memorandum and articles when registered with the Registrar becomes public document and accessible to all. • Therefore there is a presumption that any outsider dealing with the company has read and understood these documents. This is known as doctring of constructive notice. • Kotla Venkatswamy vs C Ramamurthy. Doctrine of Ultra -Vires

  21. • Persons dealing with the company in good faith have a right to assume that the internal requirements prescribed in public documents (memorandum and articles have been observed. Exceptions: • Where the outsider had knowledge of irregularity. • In case of forgery • Negligence on the part of the outsider • Acts outside the scope of apparent authority • Rayal British Bank v.Turquand Doctrine of Indoor Management

  22. • The promoters file the memorandum of association article of association and a declaration by a lawyer that the requirements of the act have been followed with the Registrar of the Companies. • Registrar of the Companies issues the Certificate of Incorporation of the company. • Distinct Legal Entity Registration of the Company

  23. • “Prospectus means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting offers from the public for the subscription and purchase of shares in,or debentures of a body corporate.” Prospectus

  24. Pre-Requisites of Prospectus • Prospectus must be dated • Prospectus must be signed • Prospectus must be registered Golden rule of the Prospectus There should be an honest disclosure of all facts. The true nature of the company’s venture to be disclosed. Prospectus

  25. Deemed Prospectus- When a company allots shares or debentures to the public through the medium of Issue Houses, then the issue houses invite subscription from the public through their own offer document. This is also called prospectus by implication. • Statement in Lieu of Prospectus- Where a public company does not invite public to subscribe for its shares, but arranges to get money from private sources>The promoters here need not issue a prospectus but are required to draft prospectus • Red Herring Prospectus- is a prospectus ,which does not have complete particulars on Price of securities offered and quantum of securities offered. E.g.-Jet Airways, Suzlon Prospectus

  26. Persons who collectively constitute the company as a corporate entity are members or shareholders a) The subscribers to the memorandum b) Who agrees in writing to become member and whose name appears in the register of members c) Who holds equity share capital and whose name is entered as beneficial owner in the records of the depository The agreement in writing to take shares of the company The registration of name in the register of members Membership

  27. Member/Shareholder

  28. Minor Insolvent Partnership Firm Foreigner Company Trade Union or Society President of India Who can be a member

  29. Membership by subscription Membership by application and registration A company with more than fifty members shall keep an index of members Modes of acquiring membership/Index of a member

  30. Statutory Rights Contractual/otherwise Name address and occupation Share held by each member and the amount paid up on those shares Date at which each person was entered in the register as a member Date at which any person ceased to be a member Rights of member / Register of Member

  31. Transfers his shares Shares are forfeited by the company Surrenders his shares Shares are sold by the company to enforce its lien Dies Is adjudged insolvent Shares have been redeemed by the company Rescind the contract of membership on fraud or misrepresentation Termination of Membership

  32. A company is an artificial legal person and the directors as a body endow the artificial legal person with human face than can act and react. The person through whom a company acts and does its business, and termed as director. An individual can be appointed as director, no corporate body corporate, association or firm Cannot hold a office of more than fifteen companies Director

  33. No academic, professional or share qualification Articles may provide for any qualifications Where share qualification is fixed by articles then the act provides a) Qualification shares must be taken within 2 months after appointment Nominal value of qualification shares must not exceed Rs. 5000 or one share where its value exceeds Rs. 5000 Share warrants will not count for this purpose Qualifications of a director

  34. First director Appointment of directors by company Appointment of directors by the board Appointment of directors by third parties (nominee director) Appointment of directors by proportional representation Appointment by central government Appointment by small shareholders Consent for appointment Written consent is required to be signed and files with the registrar and the company Appointment of Directors

  35. By shareholders By Central Government By Tribunal Removal of Directors

  36. The board of directors of 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. The following powers are: The power to make calls The power to issue debentures The power to borrow money otherwise than on debentures The power to invest funds The power to make loans The power to buy back of shares Powers of Board of Directors

  37. Sale, lease or disposal of the undertaking Showing any concession regarding payment of debts Make investment of the amount of compensation received Contribution to charitable Borrowing monies exceeding the aggregate of the paid up capital and free reserves of the company Power to be exercised in the general meetings

  38. Good faith Reasonable care Disclose interest Participate in the communities Attend board meetings Actions malafide Incompetent to act Deadlock in the board Duties /Limitations

  39. General meeting Requisites of valid meeting Notice of meting must be proper and adequate Chairman of the meeting Quorum Voting Agenda Minutes Company meeting

  40. Kinds of Meetings

  41. Object When held Not required to be held Notice Statutory report In case of default Statutory Meetings

  42. Which company to hold When to be held Gap between two AGM First AGM Subsequent AGM Extension of time maximum 3 months Business to be transacted Notice 21 days Default Annual general meeting

  43. When to hold:Atleast once in every three calendar months and 4 meetings every year Notice: To be given to every director in writing. No form or period of notice is laid down. Usually a week’s notice is sufficient. The notice must state the date, time and place of meetings. Quorum:1/3 of the total strength or two, whichever is higher. Passing of resolution by circulation is permissible Board Meetings

  44. A proposal under consideration by members in a meeting before it is voted upon Rules Should be positive in terms and should always be in writing Within power, scope and relevant to business Comply with the provisions of the Act, memorandum and articles Duly proposed by any member in a meeting Should not be withdrawn before consent Motion

  45. Any motion voted upon and agreed to in a meeting and entered in minutes. A motion passed with or without amendment is called resolution Types of Resolution Ordinary resolution Special resolution Resolutions requiring special notice Resolution

  46. Company dissolved Winding up a company is a process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator called liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights Winding up of a Company

  47. Winding up of a company differs from insolvency of an individual in as much as a company cannot be made insolvent under the insolvency law. Even a solvent company can be wound up. Winding up of a Company

  48. Compulsory winding up under orders of the National company law Tribunal NCLT Voluntary Winding up The power of the court are transferred to the National Company Law Tribunal by the company (Amendment)Act 2002. The central government is in the process of formation of this Tribunal Modes of winding up

  49. By the company passing a special resolution. Default in holding statutory meeting or in delivering statutory report to the registrar Failure to commence business within a year from the date of incorporation or suspension of business for a whole year Reduction in membership below the minimum required Inability to pay its debts of Rs 1 lakh Tribunal is of the opinion that it is just andequitable Default of company’s filing its balance sheet and profit and loss account on annual return for any five consecutive financial years Grounds for winding up by the Tribunal (NCLT)

  50. If the company has acted against the interests of sovereignty and integrity of India, the security of the state, friendly relations with foreign states public order, decency or morality. If the Tribunal is of the opinion that the company should be wound up as it had become sick and is unlikely to become viable in future Grounds for winding up by the Tribunal (NCLT)

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