Important Notes of Company Law For CS Executive - Dec, 2012 Exam

SupplementaryNotesCompanyLawForDecember,2012Exam
STUDYI(INTRODUCTION) ThewordcorporationisderivedfromtheLatintermcorpuswhichmeansbody. TheincorporatedcompanyowesitsexistenceeithertoaspecialActofParliamentortocompany legislation. A company has its own corporate and legal personality distinct and separate from that of its members. Theproportionofcapitaltowhicheachmemberisentitledishisshare.
*CSKUMARCHANDRAMOHAN*CSPUJAMOHAN* (SpecialisedinCA,CS,CWACoachingFoundation/Executive) RealStudyCentre,148/14,N.S.C.BoseRoad,NearTollygungeMetroStation,Kolkata40.
ByincorporationundertheAct,thecompanyisvestedwithacorporatepersonalityquitedistinct fromindividualswhoareitsmembers. Theshareholdersarenottheagentsofthecompanyandsotheycannotbinditbytheiracts.
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Ashareholdercannotbeheldliablefortheactsofthecompanyevenifheholdsvirtuallytheentire sharecapital. Theliabilityofamemberasshareholder,extendstocontributiontotheassetsofthecompanyup tothenominalvalueofthesharesheldandnotpaidbyhim. Anincorporatedcompanyneverdiesexceptwhenitiswoundupasperlaw. A company being a legal person and entirely distinct from its members, is capable of owning, enjoyinganddisposingofpropertyinitsownname. Thecapitalofacompanyisdividedintoparts,calledshares. Amembermaysellhissharesintheopenmarketandrealisethemoneyinvestedbyhim. Onincorporation,acompanyacquireslegalentitywithperpetualsuccessionandacommonseal. TheCommonSealactsastheofficialsignatureofacompany. Thenameofthecompanymustbeengravedonitscommonseal. ArubberstampdoesnotservethepurposeofaCommonSeal. Acompanybeingabodycorporate,cansueandbesuedinitsownname. A company, as a person separate from its members, may even sue one of its own members for libel. Acompany,beingaseparatelegalentitydifferentfromitsmembers,canenterintocontractsfor theconductofthebusinessinitsownname. AcompanycannotgobeyondthepowerstatedintheMemorandumofAssociation. Acompanyisavoluntaryassociationforprofit. Acompany,beinganabstractandartificialperson,doesnotdieanaturaldeath. Theexpressioncorporationorbodycorporateiswiderthanthewordcompany. LLPisabodycorporateandalegalentityseparatefromitspartners,havingperpetualsuccession. Anunincorporatedcompany,associationorpartnershipconsistingoflargenumberofpersonshas beendeclaredillegal. Acompanycannotbeacitizen,yetithasnationality,domicileandresidence.
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STUDYII(TYPESOFCOMPANIES) StatutoryCompaniesareconstitutedbyspecialActofParliamentorStateLegislature. Aprivatecompanymeansacompany,whichhasaminimumpaidupcapitalofonelakhrupees. ThewordsPrivateLimitedmustbeaddedattheendofitsnamebyaprivatelimitedcompany. Thenumberofmembersoftheprivatecompanyislimitedto50. Apubliccompanymaybesaidtobeanassociationconsistingofnotlessthan7members. ThesharesanddebenturesofapubliccompanymaybequotedonaStockExchange.
Everypubliccompanyshallhaveaminimumpaidupcapitaloflessthanfivelakhrupees.
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TheMemorandumofacompanylimitedbyguaranteemuststatetheamountofguarantee. Thevotingpowerofaguaranteecompanyhavingsharecapitalisdeterminedbytheshareholding andnotbytheguarantee. Anunlimitedcompanyisacompanynothavinganylimitontheliabilityofitsmembers. Anunlimitedcompanymayormaynothavesharecapital. Themembersofanunlimitedcompanyarenotliabledirectlytothecreditorsofthecompany. The Section 25 company is registered without paying any stamp duty on its Memorandum and Articles. ASection25cannotaltertheprovisionsofitsMemorandumwithrespecttoitsobjectsexceptwith thepreviousapprovaloftheCentralGovernmentinwriting. AGovernmentcompanyisacompanyinwhichnotlessthan51%ofthepaidupsharecapitalis heldbytheCentralorStateGovernment. TheGovernmentcompanyisneitheraGovernmentdepartmentnoraGovernmentestablishment. The employees of a Government Company are not the employees of the Central or State Government. TheauditorofaGovernmentCompanyshallbeappointedorreappointedbytheComptrollerand AuditorGeneralofIndia. AforeigncompanyisacompanywhichisincorporatedinacountryoutsideIndiaunderthelawof thatothercountryandhasaplaceofbusinessinIndia. Acompanyisaholdingcompanyofanotheriftheotherisitssubsidiary. If the holding company holds more than half in nominal value of the subsidiarys equity share capital,therelationshipofholdingcompanyandsubsidiarysubsistsbetweenthem. An investment company is a company, the principal business of which consists in acquiring, holdinganddealinginsharesandsecurities. AproducercompanyisabodycorporatehavingobjectsoractivitiesspecifiedinSection581Band whichisregisteredassuchundertheprovisionsoftheAct. A Financial Company means a nonbanking company which is a financial institution within the meaningofclause(c)ofSection45IoftheReserveBankofIndiaAct,1934. A statutory corporation is a body corporate and can sue and be sued, enter into contracts and acquirepropertyinitsownname.
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Three basic types of companies which may be registered under the Act are private companies, publiccompaniesandproducercompanies. Alimitedcompanyisacompanylimitedbysharesorbyguarantee. A company formed under an Act of Parliament or State Legislature is called a Statutory Company/Corporation. TheMemorandumofAssociationistheconstitutionofacompany. TheArticlesofAssociationcontainstherulesandregulationsrelatingtotheinternalmanagement ofacompany. STUDYIII(PROMOTERS)
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TheCompaniesAct,1956,doesnotdefinetheexpressionpromoters,however,ithasdefinedby SEBI(IssueofCapitalandDisclosureRequirements)Regulations,2009. Apromoterisneitheranagentof,noratrusteefor,thecompanybecauseitisnotinexistence.But heoccupiesafiduciarypositioninrelationtothecompany. A promoter is not allowed to derive a profit from the sale of his own property to the company unlessallmaterialfactsaredisclosed. STUDYIV(MEMORANDUM&ARTICLESOFASSOCIATION) Memorandum of Association determines the utmost possible scope of its operations beyond whichitsactionscannotgo. Acompanybeingalegalentitymusthaveanameofitsowntoestablishitsseparateidentity. Thenameofthecompanyisasymbolofitsindependentcorporateexistence. No company shall be registered by a name which, in the opinion of the Central Government, is undesirable. ThenameoftheStateinwhichtheregisteredofficeofthecompanyistobesituatedmustbegiven inthememorandum. Inthecaseofacompanywhateverisnotstatedinthememorandumastheobjectsorpowersis prohibitedbythedoctrineofultravires. Anultraviresborrowingdoesnotcreatearelationshipofadebtorandcreditor. Anultravirescontractisasnullandvoidasthatofcontractwithaminor. Theultraviresactsarenullandvoidabinitio. Acompanyisnotauthorisedtoissuecapitalbeyonditsregisteredcapital. Whereacompanyisasubscribertothememorandumofassociation,itmustbesignedbyaduly authorisedagent. Acompanycanchangeitsregisteredofficefromoneplacetoanotherwithinthelocallimitsofthe city,townorvillage,whereitissituated,byaBoardresolution. Changefromonecitytoanotherwithinthesamestateoftheregisteredofficedoesnotinvolves alterationofMemorandum. The articles of association of a company are its bylaws or rules and regulations that govern the managementofitsinternalaffairsandtheconductofitsbusiness.
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Neither the articles nor the memorandum can authorise the company to do anything so as to contraveneanyoftheprovisionsoftheAct. RegulationsprovidedforintheArticlesmustnotexceedthepowersofthecompanyaslaiddown byitsMemorandum. Inthecaseofacompanylimitedbyguaranteethearticlesshallstatethenumberofmemberswith whichitistoberegistered. The Articles of Association are subsidiary both to the Companies Act and the Memorandum of Association.
Thememorandumandarticles,whenregistered,becomepublicdocumentsandcanbeinspected byanyoneonpaymentofnominalfee.
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Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporationbythememorandumorotherdocumentsofconstitution. Thedoctrineofconstructivenoticeseekstoprotectthecompanyagainsttheoutsiders. Theprincipalofindoormanagementoperatestoprotecttheoutsidersagainstthecompany. Publiccompanieslimitedbysharesneednothavetheirownarticlesofassociation. STUDYV(CONTRACTS&CONVERSIONS) Thechangeofnamewillnotaffectanyrightsandobligationsofthecompany,orlegalproceedings commencedundertheoldname. Contractsmadeonbehalfofthecompanybeforeitsincorporationarecalledpreliminaryorpre incorporationcontracts. Contractsmadeafterincorporationbutbeforeobtainingthecertificatetocommencebusinessare calledprovisionalcontracts. In the case of a private company the question of provisional contracts does not arise as it can commencebusinessimmediatelyonitsincorporation. Whereacontractisintraviresthecompanybutultraviresthedirectors,thecompanymaybeliable andmayevenratifyit. APrivateLimitedCompanyceasetobeaPrivateCompanyandbecomesaPublicCompanywhenit fails to comply with any of the four restrictive provisions required by Section 3(1)(iii) to be incorporatedinitsarticles. ApubliccompanycanbeconvertedintoaprivatecompanyonlyaftertheapprovaloftheCentral Government. Aprivatecompanyoracompanyhavingnosharecapitalmaycommencebusinessandexerciseits variouspowersimmediatelyafteritisincorporated. A public company must obtain a certificate of commencement of business from the Registrar beforeitcancommencebusinessorexerciseitsborrowingpowers. Thecertificateisconclusiveevidencethatacompanyisentitledtocommencebusiness. Conversionofaprivatecompanyintoapubliccompanycanbegroupedasconversionbychoiceor volitionandbydefault. 4
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STUDYVI(CONCEPTOFCAPITAL&FINANCINGOFCOMPANIES) Ashareisarighttoparticipateintheprofitsmadebyacompany. RightsissueisanissueofcapitalunderSection81(1)oftheCompaniesAct,1956tobeofferedto theexistingshareholdersofthecompanythroughaletterofoffer. Bonusshareshelpcompaniestoreducethegapbetweencapitalandfixedassets. Employeestockoptionschememeansarightbutnotanobligationgrantedtoanemployeetobuy thesharesofthecompanyatapredeterminedprice.
Sweatequitysharesissuedtoemployeesordirectorsshallbelockedinforaperiodof3yearsfrom thedateofallotment. STUDYVII(ALTERATIONOFSHARECAPITAL)
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The Companies Act, 1956 permits a company limited by shares to issue two classes of shares, namelyequitysharecapitalandpreferencesharecapital. Equitysharecapitalmeansallsharecapitalwhichisnotpreferencesharecapital. Shareincludesstockexceptwhereadistinctionbetweenstockandsharesisexpressedorimplied. Onlyfullypaidupsharescanbeconvertedintostock. Acompanymayifauthorisedbyitsarticles,forfeitsharesfornonpaymentofcallsandthesame willnotrequireconfirmationoftheCourt. After completion of buyback operation the securities must be extinguished and physically destroyedwithin7daysofthelastdateofcompletionofbuyback. Reductionofcapitalmeansreductionofissued,subscribedorpaidupcapitalofthecompany. STUDYVIII(PROSPECTUS) Allpubliccompanieseitherissueaprospectusorfileastatementinlieuofprospectus. Ifastatementinlieuofprospectusisnotdelivered,thecompanyandeverydirectorshallbeliable toafineuptoRs.10,000. The prospectus must be issued within 90 days of its registration either by newspaper advertisementorotherwise. Shelfprospectusmeansaprospectusissuedbyanypublicfinancialinstitutionorbankforoneor moreissuesofsecuritiesorclassofsecuritiesspecifiedintheprospectus. Redherringprospectusmeansaprospectuswhichdoesnothavecompleteparticularsontheprice ofthesecuritiesofferedandthequantumofsecuritiesoffered. Information Memorandum is a kind of prospectus which has its relevance in the book building process. Itisthedutyofthosewhoissuetheprospectustobetruthfulinallrespects. An offer for sale is a prospectus, within the meaning of the Act, and it is deemed to have been issuedbythecompany. STUDYIX(DEBTCAPITAL) All companies are given power to borrow by their articles which fix the maximum limit of borrowings.
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WherethecompanyborrowswithouttheauthorityconferredonitbytheArticlesorbeyondthe amountsetoutintheArticles,itisanultraviresborrowingandhencevoid. Adocumentwhich,eithercreatesadebtoracknowledgesisaDebenture. Acompany,insteadofissuingdebentures,eachinrespectofseparateanddistinctdebt,mayraise oneaggregateloanfundorcompositestockknownasDebentureStock. Workingcapitalmaybedefinedastheexcessofcurrentandliquidassetsovercurrentliabilitiesof abusiness. CertificateofDepositisadocumentoftitletoatimedeposit.
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Commercial paper refers to unsecured promissory notes issued by credit worthy companies to borrowfundsonashorttermbasis. STUDYX(CREATION&REGISTRATIONOFCHARGES) Achargeisasecuritygivenforsecuringloansordebenturesbywayofamortgageontheassetsof thecompany. AccordingtoSection124oftheAct,chargeincludesamortgage. Theadvantageofafloatingchargeisthatthecompanymaycontinuetodealinanywaywiththe propertywhichhasbeencharged. On crystallisation, the floating charge converts itself into a fixed charge on the property of the company. Thecreationofafloatingchargeleavesthecompanyfreetocreatealegalandequitablemortgage onthesamepropertyuntilthefloatingchargecrystallises. A floating charge remains afloat until awinding up commences, unless it has already crystallised throughtheinterventionofthedebentureholdersorthecreditors. Chargeidentificationnumberisallottedatthetimeofregistrationofthecharge. Achargecreatedorallywouldalsorequireregistration. The particulars of the charge must be filed within 30 days with the Registrar after the date of creationofthecharge. Nonregistration of mortgage or charges, does not render the transaction void or the debt not recoverable. AnybodycaninspecttheRegisterofChargesofanycompany. Eform17isrequiredtobefiledwithin30daysfromthedateofsatisfactionorpaymentoffulland finalamounttothechargeholder. Therearetwokindsofcharges,fixedorspecificchargeandfloatingcharge. Everycompanyisrequiredtokeepatitsregisteredofficearegisterofallchargesaswellasacopy ofinstrumentcreatinganycharge. Company may make petition to CLB (Central Government) for extension of time for filing particularsofchargestoROCforregistration. For intimating modification of charge, eform 8 is required to be filed within 30 days of modification. Mortgageiscreatedbytheactofpartieswhereasachargemaybecreatedeitherthroughtheact ofpartiesorbyoperationoflaw.
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STUDYXI(ALLOTMENT&CERTIFICATESOFSECURITIES) Sharescomeintoexistenceonallotment. Theallotteedoesnotautomaticallybecomeamemberofthecompany,untilhisnameisplacedon theregisterofmembers. Ifsharesareallottedonanapplicationofaminor,theallotmentwillbevoid. Anallotmentofsharesshouldbecommunicated.
Noallotmentshallbemadewhereaprospectusisissuedgenerallyuntilthebeginningofthefifth dayafterthedateonwhichtheprospectusissoissuedorsuchlaterdateasmaybespecifiedinthe
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prospectus. Allmoneysreceivedfromapplicantsforsharesmustbekeptinaseparateaccountmaintainedwith ascheduledbank. Incasetheallotmentisnotmadeorrefundordernotdispatchedtoinvestorswithin30daysfrom thedateofclosureofissue,thentheCompanyshallpayinterest@15%p.a. If the minimum subscription is not raised within 120 days after the issue of the prospectus the moneypaidbythesubscribersmustbereturnedforthwith. Thecompanyisrequiredtoissueletterofallotmenttopersonswhoareallotedshares. An application is an offer by the applicant and allotment is an acceptance of the offer by the company. When the companys issue is oversubscribed, the directors allot less shares to all or some applicantsthanappliedfor,itiscalledpartialallotment. Section75oftheCompaniesActprovidesthatafterallotmentofsharesbyanycompany,areturn of allotment in the prescribed eform 2 must be filed with the Registrar of Companies within 30 daysoftheallotmentofshares. Asharecertificateisacertificateissuedtothemembersbythecompanyunderitscommonseal specifyingthenumberofsharesheldbyhimandtheamountpaidoneachshare. Acertificateofsharesisanevidencetotheeffectthattheallotteeisholdingacertainnumberof sharesofthecompanyshowingtheirnominalandpaidupvalueanddistinctivenumbers. Asplitcertificatemeansaseparatecertificateclaimedbyashareholderforaportionofhisholding. Asharewarrantisabearerdocumentoftitletothespecifiedshares. Asharewarrantholderisnotamemberofthecompany. Sharewarrantisanegotiableinstrument. Forfeitureofsharesmeanstakingbackofsharesbythecompanyfromtheshareholders. Whenforfeitureofsharestakesplace,shareholderceasestobeamemberandtheforfeitedshares becomethepropertyofthecompany. Forfeitedsharesarereissuedatadiscountwhichcannotexceedtheamountalreadypaidonsuch shares. Allotment means the act of appropriation by the Board of directors of the company of a certain numberofsharestopersonswhohavemadeapplicationsforshares. Shares forfeited by a company may either be cancelled or reissued to another person at the discretionoftheBoard.
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STUDYXII(MEMBERSHIP) A Company can become amember of any other company provided, itmust beauthorised by its MemorandumofAssociation. Asubsidiarycompanycannotbecomeamemberofitsholdingcompany. Acompanycannotbecomeamemberofitself. A trade union registered under the Trade Union Act can be registered as a member of the Company.
Jointholdersofsharesinapubliccompanyarenotasinglemember.
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Apubliccompanydoesnothaveanyrestrictionregardingthemaximumnumberofmembers. Every member of a public company limited by shares, holding equity shares, shall have votes in proportiontohisshareofthepaidupequitysharecapitalofthecompany. The liability of the members becomes unlimited if the number of members falls below the statutorylimits. ACompanyiscomposedofmembers,thoughithasitsownentitydistinctfrommembers. A nonprofit making Company licensed under Section 25 of the Companies Act can become memberofanyothercompany. Partnershipfirm,minorcannotbecomeamemberofacompany. PawneeandReceivercannotbetreatedasmembers. The Register of Members shall be kept at the registered office of the Company subject to the provisionsofSection163oftheCompaniesAct,1956. STUDYXIII(TRANSFER&TRANSMISSIONOFSECURITIES) Asharewarrantistransferablebymeredeliveryofthewarrantswithoutexecutionofanywritten instrumentoftransferbeingregisteredbythecompany. TheBoardof Directorsofacompanyortheconcerneddepository hasnodiscretiontorefuseor withholdtransferofanysecurity. Atransferissaidtobecompletedonlyafteralltheformalitiessuchasexecutionofthetransfer deedandhandingoverthesharecertificatesarecompleted. Where an instrument is not complete or is erroneous, it will be a case of bad delivery and the companywouldbeentitledtorefuseregistration. Aforgedtransfercannotpassanytitleandisanullity. A Depository Participant is an agent of depository and is registered as such under the SEBI Act, 1992torenderdepositoryservices. TheDepositoriesAct,1996specifiesthatallsecuritiesheldinadepositoryarefungible. ThetransferofsharesattractsstampdutyundertheIndianStampAct,1899. Unless the articles provide for a lien, a company has no inherent or prima facie right of lien on sharesofmembers.
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STUDYXVIII(MEETINGS) Theremustbeatleast2personstoconstituteameeting. Section 165 of the Companies Act 1956 does not specify time and place for holding a statutory meeting. IntermsofSection166oftheCompaniesAct,1956anannualgeneralmeetingshallbeheldevery year. Notice of a general meeting given by secretary without the sanction of the directors or proper authorityisinvalid
Ameetingconvenedasameetingofthedirectorsmaybevalidasameetingofthecompanyifall theboardmembersarepresent.
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Classmeetingsarethosemeetingswhichareheldbyholdersofaparticularclassofshares,e.g. preferenceshares. Section 285 of the Act prescribes that in the case of every company, a meeting of the Board of directorsshallbeheldatleastonceineverythreemonthsandatleastfoursuchmeetingsshallbe heldineveryyear. IfnoticeofthemeetingisnotgiventooneofthedirectorsthenthemeetingofBoardofDirectorsis invalid. ThereisnorestrictionregardingtheholdingofBoardmeetingsonanyday. Section193oftheActrequiresthatminutesofthemeetingshouldberecordedwithin30daysand signedeitherbytheChairmanofthatmeetingorbytheChairmanofthenextmeeting. Quorum is the minimum number of directors required to be present to validly transact any business. UnderSection292A,everypubliccompanyhavingpaidupcapitalofnotlessthanfivecroresof rupeesshallconstituteacommitteeoftheBoardknownasAuditCommittee. Aproxyisentitledtovoteonlyonapollbutthearticlesofanycompanymayprovideforaproxy votingbyshowofhandsalso. Aproxycanmakeademandforapoll. Amembermayeithervotepersonallyorbyproxy. Atanygeneralmeetingallresolutionsaredecidedinthefirstinstancebyashowofhandsandeach memberhasonevote. Ifthesharesheldbyaminorarefullypaid,theminorwillbeentitledtovoteatthemeetingofthe companyinwhichheisashareholder. Acastingvoteisasecondvoteexercisedbyachairmanofameetinginadditiontohisownvoteas amember. Motionisaproposalsubmittedforadiscussionandadecisionadoptedbymeansofaresolution. Amotionbecomesaresolutiononlyaftertherequisitemajorityofmembershaveadoptedit. Anadjournedmeetingismerelythecontinuationoftheoriginalmeeting. Postponementofameetingistoputoffordefertheholdingofameetingbeforethedateoriginally fixedforthemeetinghasarrived. Theminutesbookmustbekeptattheregisteredofficeofthecompany.
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Proxycanberevokedbythememberbyattendingandvotinghimselfbeforetheproxyhasvoted. Postponementistheactoftheconveningauthoritywhereastheadjournmentistheactofmeeting itself. STUDYXX(DEPOSITS) If the deposit is in the name of the minor, the name of the guardian should be stated in the application,andtheguardianshouldsigntheformforandonbehalfoftheminor.
Companiesarerequiredtodepositorinvestasumwhichshallnotbelessthan15%oftheamount ofitsdepositsmaturingduringthefinancialyear(commencingfrom1stdayofAprilandendingon 31stdayofMarch).
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Every company intending to invite, allowing or causing any other person to invite deposits shall issue an advertisement for the purpose in a leading English newspaper and one vernacular newspaper. STUDYXXI(ACCOUNTS&AUDIT) Forpreparationofannualaccounts,themaintenanceofproperbooksofaccountisamust. Section209requireseverycompanytokeeptheaforesaidbooksofaccountatitsregisteredoffice. WhereacompanyhasabranchofficewhetherinIndiaoroutside,thebooksofaccountrelatingto transactionseffectedatthebranchofficemaybekeptatthatoffice. The books of account are open to inspection by the company director, Registrar or a Government/SEBIofficer. Section 227(1) empowers an auditor with the right of access at all times to the companys accounts,whetherkeptattheheadofficeofthecompanyorelsewhere. Subsection(1)(d)ofSection209oftheCompaniesAct,1956,dealwithCostaccountingrecords. Section 210 of the Companies Act makes provisions for presenting the annual accounts of a companybeforetheannualgeneralmeeting. The balance sheet and profit and loss account must be approved by the Board of directors and signedbythedirectorsbeforetheyaresubmittedtotheauditorsfortheirreport. AsperSection215oftheCompaniesAct,1956,theBalanceSheetandProfit&LossAccountmust besignedonbehalfoftheBoardofdirectorsbynotlessthantwodirectorsandthemanager,or secretary,ifany.Ifthecompanyhasamanagingdirector,heshouldbeoneofthesigningdirectors. IntheabsenceofanyspecificprovisioninSection215,thepowerofthedirectorstoapprovethe annualaccountscannotbedelegatedtoacommitteeofdirectorsorsomeofthedirectors. AsperClause32oftheListingAgreement,theCompanywillsupplyacopyofthecompleteandfull Balance Sheet, Profit and Loss Account and the Directors Report, to each Shareholder and upon applicationtoanymemberoftheExchange. Audit is an examination of accounting records undertaken with a view to establishing the correctnessorotherwiseofthetransactionsreflectedtherein. Auditisacarefulscrutinisingofaccountingrecordsundertakentoestablishatrueandfairviewof thecompanysstateofaffairs. Everycompanyshall,ateachannualgeneralmeetingappointanauditororauditorstoholdoffice fromtheconclusionofthatmeetinguntiltheconclusionofnextannualgeneralmeeting.
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ThefirstauditororauditorsaretobeappointedbytheBoardofdirectorswithinonemonthofthe dateoftheregistrationofthecompany. Whereafirmisappointedasauditor,theceilingwill be20companiesperpartnerwhoisnotin wholetimeemploymentelsewhere. ThecasualvacancyintheofficeofauditormaybefilledbytheBoard. Where the vacancy is caused by resignation of auditor, such vacancy shall only be filled by the companyingeneralmeeting.
If no auditors are appointed or reappointed at the annual general meeting, the Central Governmentmayappointapersontofillthevacancy.
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ThefirstauditorappointedbytheBoardofdirectorsmayberemovedatageneralmeetingbythe company. Anauditorisanagentoftheshareholders. The cost audit conducted under Section 233B shall be in addition to an audit of the company conductedbyauditorappointedunderSection224. The books of account should be kept on accrual basis and according to double entry system of accounting. AspertheAct,booksofaccountandotherbooksandpapersshouldbeavailableforinspectionby anydirectoronworkingdaysduringbusinesshours. TheActprovidesthateveryprofitandlossaccountandbalancesheetofthecompanyshallcomply withtheaccountingstandards. The Act empowers the Central Government to appoint either any Chartered Accountant or the companysownauditortoconductaspecialauditincertaincircumstances. Socialauditisacombinationofperformanceauditandefficiencyaudit. STUDYXXII(DIVISIBLEPROFITS&DIVIDENDS) FinaldividendisrecommendedbytheBoardofdirectorsinitsreporttotheshareholders,asper therequirementsofSection217oftheCompaniesAct,whichisattachedtothebalancesheetfor therelevantfinancialyear. FinalDividendisdeclaredbytheshareholdersattheannualgeneralmeeting. Theshareholdersmay,declarethepaymentofdividendonequitysharesataratelowerthanthe onerecommendedbythedirectorsintheirreport. Theinterimdividendispaidbetweentwoannualgeneralmeetingsofthecompany. Both interim and final dividend when declared become debt and are payable within 30 days of declaration. APreferencesharecarriesapreferentialrightastodividendinaccordancewiththetermofissue andthearticlesofassociation,subjecttotheavailabilityofdistributableprofits. Dividendcannotbepaidoutoftheassetsofthecompany,andgenerally,canbedeclaredonlyout oftheprofitavailableforthepurpose. ScheduleXIVprescribestheratesofdepreciationofvariousassetsbothunderthewrittendown valuemethodandstraightlinemethodforsingleshift,doubleshiftandtripleshiftbasis. Anewlyincorporatedcompanyisprohibitedfromtransferringmorethan10%ofitsprofitstoits reserves.
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Dividendcanbepaidonlyincash,notinkind. Dividendhastobepaidtotheregisteredshareholderoftheshareortohisorderortohisbankers. Dividendhastobedistributedwithin30daysofthedeclaration. DividendWarrantisanorderbythecompanytoitsbankertopaytheamountspecifiedthereinto theshareholderwhosenameiswrittentherein. Ifadividendisdeclaredandpaidtoshareholders,thecharacterofthepaymentcannotbealtered byasubsequentresolution.
Dividendmustbepaidonlyoutofprofitsandafterprovidingfordepreciationasprovidedunder section205ofCompaniesAct,1956.
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A preference share carries a preferential right as to dividend in accordance with term of issue subjecttoavailabilityofdistributableprofits. UnderSection173(1),declarationofdividendisanordinarybusinessatanannualgeneralmeeting. STUDYXXIII(SOLESELLINGANDSOLEBUYINGAGENTS) Acompanycannotappointasolesellingagentforanyareaforatermexceeding5yearsatatime. NocompanyhavingapaidupsharecapitalofRupees50lakhsormoreshallappointasoleselling agentexceptwiththeconsentofthecompanyaccordedbyaspecialresolutionandtheapprovalof theCentralGovernment. The appointment of a sole selling agent shall be cease to be valid if it is not approved by the companyinthefirstGeneralMeetingheldafterthedateonwhichtheappointmentismade. STUDYXXIV(BOARDSREPORT&DISCLOSURES) The Boards report is a comprehensive document circumscribing both financial and nonfinancial information about the performance and prospects of the company for the benefit of the stakeholders. The Boards report should include a statement as per the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, with respect to the matters of conservation of energy,technologyabsorptionandforeignexchangeearningsandoutgo. Every company not required to employ a wholetime secretary under Section 383A(1) of the Act and having a paidup share capital of Rupees 10 lakhs or more shall obtain a certificate from a secretaryinwholetimepractice. TheManagementDiscussionandAnalysisReport(MDAR)shouldeitherformapartoftheBoards reportorbegivenasanadditiontheretointheannualreporttotheshareholders. Theboardisboundtogivefullinformationandexplanationasregardsanyreservation,qualification oradverseremarkscontainedintheauditorsreport. The matters to be included in Boards Report should be under the provisions of Companies Act, ListingAgreements,SEBIGuidelinesandRBIdirections. STUDYXXV(REGISTERS&RETURNS) Theregisterofdepositsisrequiredtobepreservedingoodorderforaperiodofnotlessthan8 calendaryearsfromthefinancialyearinwhichthelatestentryismadeintheregister. In the case of Joint shareholders, the particulars of each joint holder should be recorded in the register.
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No notice of any trust, express, implied or constructive, should be entered in the register of debentureholders. The Register and Index of Debenture holders should be preserved for 15 years from the date of redemptionofdebentures. TheAnnualReturnshouldbesignedbytwoofficersofthecompanyconsistingoftheManageror SecretaryofthecompanyandaDirectorofthecompany. TheMinutesBooksofDirectors'Meetingsarenotavailableforinspection,excepttodirectors.
The particulars mentioned in Section 372A shall be entered in the register in chronological order within7days. EformNo.10shallbefiledforissueofdebentures.
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Filing fee is to be paid to the Registrar on all the documents filed with him as prescribed under ScheduleXtotheCompaniesAct. ICSIhasissuedSecretarialStandard4(SS4)onregistersandrecords. STUDYXXVI(INSPECTION&INVESTIGATION) Section209AoftheCompaniesAct,1956,containsprovisionsinrespectofinspectionofbooksof accountandotherbooksandpapersofeverycompany. IntermsofSection209AoftheCompaniesAct,1956,inspectionmaybemadewithoutgivingany previousnoticetothecompanyoranyofficerthereof. TheCentralGovernmenthasbeenempoweredunderSection247(1)oftheCompaniesAct,1956, toappointoneormoreinspectorstoinvestigateandreportonthemembershipofanycompany. STUDYXXVII(OPPRESSION&MISMANAGEMENT) UnderSection397oftheCompaniesAct,anymemberofacompanycancomplainthattheaffairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressivetoanymember. Where the company has a share capital, 100 members or one/tenth of the total number of members,whicheverisless,isrequiredtomakeanapplicationundersections397and398ofthe CompaniesAct,1956. STUDYXXVIII(COMPROMISES&ARRANGEMENTS) If a compromise or arrangement is not bona fide but intended to cover misdeeds of delinquent directors,theCourtshallnotsanctionthescheme. TheChairmanappointedbytheCourttopresideoverthemeetinghastofilehis/herreportwithin 7daysoftheconclusionofthemeetingwheretheschemewasconsideredandvoteduponbythe creditorsormembers. Under Section 392 of the Companies Act, 1956, the Court cannot issue directions which do not relateeithertothesanctionedschemeitselforitsworkinginrelationtothecompanywhichthe schemeseekstoreconstruct. Arrangementincludesareorganization ofsharecapitalofcompanybyconsolidationofsharesof differentclassesordivisionofsharesintosharesofdifferentclassesorbyboththesemethods. The court has the powers to supervise the implementation of the scheme and to sanction modification of the terms of the scheme. While sanctioning the scheme, the court also has the powertoorderwindingup. 13
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STUDYXXIX(COOPERATIVES,SOCIETIES&TRUSTS) Principlesofcooperativesallowvoluntaryandopenmembership. Asocietycanberegisteredbyminimum7individualswhichmayincludeforeigners,orregistered society. AsocietycanmakeitsbyelawsinaccordancewiththeRulesandRegulationsofthesociety. Atrustmaybedeclaredeitherorallyorthroughaninstrumentinwriting.
Expresstrustsarecreatedbytheactofpartieseitherinwordsorinwriting. Animpliedtrustisonewhichisdeducedfromtheconductofthepartiesandthecircumstancesof thetransactions. STUDYXXX(PRODUCERCOMPANIES) There is an obligation on the Producer Company to deal primarily with the produce of its active membersincarryingoutitsspecifiedobjects. ProducerCompanyshallholditsfirstAnnualGeneralMeetingwithin90daysfromthedateofits incorporation. EveryProducerCompanyhavinganaverageannualturnoverexceeding5crorerupeesineachof threefinancialyearsshallappointamemberoftheInstituteofCompanySecretariesofIndiaasa wholetimeSecretaryofthecompany. Companies (Amendment) Act, 2002 hadadded a newPart IXA to the main Companies Act, 1956 consistingof46newSectionsfrom581Ato581ZTrelatingtoProducerCompanies. STUDYXXXI(LIMITEDLIABILITYPARTNERSHIPS) LimitedLiabilityPartnership(LLP)isanincorporatedpartnershipformedandregisteredunderthe LimitedLiabilityPartnershipAct2008withlimitedliabilityandperpetualsuccession. TheIndianPartnershipAct1932shallnotbeapplicabletoLLPs. TheLLPisabodycorporateandalegalentityseparatefromitspartners. Every LLP shall have at least 2 partners and shall also have at least 2 individuals as Designated Partners,ofwhomatleastoneshallberesidentinIndia. TheCentralGovernmenthaspowertoinvestigatetheaffairsofanLLP,ifrequired,byappointment ofcompetentinspectorforthepurpose. EverylimitedliabilitypartnershipshallhaveeitherthewordsLimitedLiabilityPartnershiporLLP asthelastwordsofitsname. Apartnershallnotbepersonallyliableforthewrongfulactoromissionofanyotherpartnerofthe LimitedLiabilityPartnership. STUDYXXXII(BANKING&INSURANCECOMPANIES) Companies carrying on banking business in India are required to use at least one word bank ,bankerorbankingintheirname. ItismandatoryforabanktogetitselfregisteredwiththeRBI. Insurance Regulatory and Development Authority acts as a statutory regulator to regulate and promotetheinsuranceindustryinIndiaandtoprotecttheinterestsofholdersofinsurancepolicies
ContactNo.9331963835,9239521128,9433352926.
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Theaggregateequityparticipationofaforeigncompanycannotexceed26%ofthepaidupcapital oftheinsurancecompany. STUDYXXXIII(OFFENCES&PENALTIES) Section5definestheexpressionofficerwhoisindefault. STUDYXXXIV(STRIKINGOFFNAMESOFCOMPANIES)
Within20yearsfrompublicationofnoticeofstrikingoffinofficialgazette,anapplicationbemade bythecompany/member/creditortothecourt. Acompanywhichisnotcarryingonanybusinessorinoperationisadefunctcompanyandmaybe struckofffromtheregisterofcompaniesunderSection560ofCompaniesAct,1956. TheRegistrarmayonitsownmotionproceedtostrikeoffacompany,ifithasreasonablecauseto believethatacompanyisnotcarryingonbusiness. STUDYXXXV(WINDINGUPOFCOMPANIES) ACompanyoramemberoracreditormaymakeanapplicationtothecourtforrestorationofthe nameofthecompanytotheregister,iftheyfeelaggrievedbysuchdecisionofstrikingoff. TheliquidatorappointedbythecompanyortheCourtcarriesoutthewindingupproceedingsbut theorderfordissolutioncanbepassedbytheCourtonly. Creditorscanprovetheirdebtsinthewindingupbutnotonthedissolutionofthecompany. AnycontributoryorcontributoriesortheRegistrarmaypetitionforthewindingupofacompany. TheMembersappointstheliquidatorincaseofMembersvoluntarywindingup. WhenacompanyiswoundupbythemembersorthecreditorswithouttheinterventionofCourt (tribunal),itiscalledasvoluntarywindingup. Section 439 specifies the persons by whom a petition for winding up of a company may be presentedtotheCourt(tribunal)incompulsorywindingup. Section433laysdownthegroundsonwhichacompanymaybewoundup,incompulsorywinding up. STUDYXXXVI(EGOVERNANCE) TheFrontOfficerepresentstheinterfaceofthecorporateandpublicuserwiththeMCA21system. TheFrontOfficecomprisesofVirtualFrontOfficeandPhysicalFrontOffice. The Back Office represents the offices of Registrar of Companies, Regional Directors and Headquarters. All existing and any person intending to be appointed as a director are required to obtain the DirectorIdentificationNumber(DIN). DINisalsomandatoryfordirectorsofIndianCompanieswhoarenotcitizensofIndia. DINisnotmandatoryfordirectorsofforeigncompanyhavingbranchofficesinIndia. OnlyasingleDINisrequiredforanIndividualirrespectiveofnumberofdirectorshipsheldbyhim. DINisauniqueidentificationnumberandonceobtainedisvalidforlifetimeofadirector. CorporateIdentityNumber(CIN),worksasauniqueidentifierofanIndiancompany.
ContactNo.9331963835,9239521128,9433352926.
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15
Foreign Company Registration Number (FCRN) is a unique identifier in the case of a Foreign Company. DINtobeallottedbytheCentralGovernmentwithin1monthfromthereceiptofapplicationfor allotmentofDIN. Individualsprohibitedtoapply,obtainorpossessmorethanoneDIN. EveryexistingDirectortointimatehisDINtothecompanyorallcompanieswhereinheisadirector, within1monthofreceiptofDIN.
EveryuserwhoisrequiredtosignaneformforsubmissionwithMCAisrequiredtoobtainaDigital SignatureCertificate.
ContactNo.9331963835,9239521128,9433352926.
Balance sheet and Profit and Loss Accounts are to be filed as two separate documents with differenteforms. AnattachmentreferstoadocumentthatissentasanenclosurewithaneFormbymeansofan attachedfile. PrefillisfunctionalityinaneFormthatisusedforfillingautomatically,therequisitedatafromthe systemwithoutrepeatedlyenteringthesame. STUDYXXXVII(SECRETARIALSTANDARDS) ICSIhasissuedSecretarialStandard1(SS1)andSecretarialStandard2(SS2)ontheMeetingsof theBoardofDirectorsandontheMeetingsoftheGeneralMeetingrespectively.
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Important Notes of Company Law For CS Executive - Dec, 2012 Exam

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SupplementaryNotesCompanyLawForDecember,2012Exam

ByincorporationundertheAct,thecompanyisvestedwithacorporatepersonalityquitedistinct fromindividualswhoareitsmembers. Theshareholdersarenottheagentsofthecompanyandsotheycannotbinditbytheiracts.

CSKUMARCHANDRAMOHANCSPUJAMOHAN* (SpecialisedinCA,CS,CWACoachingFoundation/Executive) RealStudyCentre,148/14,N.S.C.BoseRoad,NearTollygungeMetroStation,Kolkata40.

Sweatequitysharesissuedtoemployeesordirectorsshallbelockedinforaperiodof3yearsfrom thedateofallotment. STUDYVII(ALTERATIONOFSHARECAPITAL)

Companiesarerequiredtodepositorinvestasumwhichshallnotbelessthan15%oftheamount ofitsdepositsmaturingduringthefinancialyear(commencingfrom1stdayofAprilandendingon 31stdayofMarch).

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