Вы находитесь на странице: 1из 48

| 


 |
 




R Earliest understanding of the word company was
probably dated in the early 13th century, the merchant
guilds of that period were loosely structured
institutions and groups of the merchants.
R 16th and 17th centuries - process of incorporation was
introduced and the government granted trade
monopolies through royal charters. Later through
specific charters regulation was brought in with regard
to the subscribed fund and stock holdings in the
company.


R ncorporation of each such business unit with a fresh
charter each time was a cumbersome procedure, the
first legislative activity on company regulation was in
1720. ± Bubble Act ± companies prohibited from
functioning unless th incorporated as a legally
recognized entity.
R 1834 ± Trading Companies Act replaced Bubble Act.
Limited personal liability of members based upon their
share in the company.
R 1844 ± Joint Stock Companies Act. Registrar of
Companies established . Shares become transferable.
| !

R Company laws in ndia closely followed the English law and
regulations.
R 1850 ± first companies Act was enacted.
- Registration of companies and transferability of shares.
R 1857- amendment legislation ± registration with or without
limited liability
- Later this right was also extended to the banking and insurance
companies
R 1956 ± Companies Act, a consolidated version for the
regulation of company affairs.
R 2000 ± amended to include measures for good governance ±
minimum paid-up capital requirement, protecting small
depositors, director¶s responsibility statements etc.
| !"#

- ntroduction of shelf-prospectus with regard to the book-
building activities of financial companies.
R 2001 ± amendment with regard to buy-back of shares upto
10% of the paid-up capital of the company by its board of
directors.
R 2002 ± amendments with regard to the constitution of the
company law tribunal and company law appellate tribunal, and
an appeal from there shall be preferred in the Supreme Court.
- Rehabilitation and revival fund.
- Failure to file balance-sheet, acting against the interests of the
security of the country and a sick industry beyond any viable
revival in future, shall be grounds for winding-up.
|$ | 

|   
| 
R A voluntary association of persons come together for
carrying on business and sharing the profits
therefrom.
R Companies act, 1956 defines a company as an entity
registered according to the legislation.
R An association of many persons who contribute
money to a common stock utilized for trade or
business and who share the profit from such trade or
business. Such common stock is called the capital
and the contributors to it are members. (Lord Lindley)
  
R An artificial person created by law, having separate
entity with a perpetual succession and common seal.
(Prof.Hanes)
R The derivations from this definition are:
- t is a separate legal entity,
- Limited or specified liability of its members,
- ncorporation or registration,
- Separate property,
- Transferability of shares,
- Perpetual succession, and
- Common seal.
%%#
R A company differs from partnership in the following
ways:
- A company is a separate legal entity, so it can be sued
and sue in its own name.
- A shareholder¶s liability is not the same as that of a
partner, who has to individually take the entire liability.
- Being a separate entity, it has its own rights and
duties, distinct from its members,
- The company is not an agent of the subscribers nor is
it their trustee.
%& %'"%
R The concept of artificial person has been adopted to
position the company as a separate entity.
R Artificial person is any such instrumentality created by
law for a specific purpose.
R To bring in a difference from partnership and show a
much better structured institution, company as a
separate legal entity was visualized.
R Also a separate legal entity would entail a better
definition of the rights and liabilities of the company as
well as its members.
|%%# 
R A company is to be registered or incorporated under
the legislation with a minimum of seven members and
two if it¶s a private company.
R f an association of ten persons, and 20 in case of
banking companies, is not registered, then its an
illegal association.(Section 11)
R ts called an artificial person, because it¶s a creation of
law, and a person because it is vested with rights and
obligations.
R Sec.34(2) says that on registration it becomes a body
corporate by the name contained in the memorandum
of association.
|%%# 
R a company is at law a different person altogether
from the subscribers«.; even if the business remains
the same after incorporation with the same people
managing the show on the same lines, still it is not an
agent of the subscribers or the promoters, or is it a
trustee for them. Nor are the subscribers liable in any
manner or form, except to the extent and in the
manner provided by the Act´ ± Lord Macnaughten in
Solomon Vs.Solomon&Co. Ltd.(1877)AC 22.
|%%# 
R Lee V. Lee Air Farming Ltd. (1960) 3 All ER 429 PC ±
held there was a valid contract of service between Lee
and the company and Lee, was therefore a worker of
the company. So his wife was entitled to
compensation under the WC Act.
R Bacha F.Guzdar V. The CT, Bombay (AR 1955 SC
74)
-though the income in the hands of the company was
partly agricultural, yet the same income was received
by the plaintiff as dividend and hence could not be
treated in the same manner as company.
|%%# 
R Separate property ± shareholders are not part owners
of the undertaking (Bacha Guzdar¶s case) ± only have
a right to vote, attend meetings, and receive
dividends.
- No member can claim ownership of company¶s
property, during existence or winding up. (RF Perumal
V. John)
- No insurable interest in the company's property, even
if he held almost the entire share capital. (Macaure V.
Northern Assurance Co. Ltd.)
- shares are transferable (Sec.82 ± Companies Act)
- company can be sued and sue in its own name, as it
has a common seal which is its official signature.
( '"%
R Company having seperate existence, members are
not liable for the company¶s debts.
- Where the company is limited by shares, the liability of
the members is limited to the nominal value of shares
held by them.
- f the liability is unlimited, members¶ liability extends
beyond their shares¶ nominal or face value and
continues till the debt is completely paid off.
º  
          
        
º  
        
          
    
 
'&"%%)%
R Advantages of incorporation allowed only when used for
honest and lawful purposes, otherwise the corporate
personality is set aside to look at the identity of persons
responsible for misuse and fraud on company's name and
personality.
R nstances when seperate entity is overlooked:
- where a company has been started for the purpose of tax-
evasion or circumvention of tax obligations.
- where the company is acting as an agent of its members,
then the members become liable for its acts, whether
there is an express agreement to this effect or if its
implied from the facts of a particular case.
|%)% 
- the company was formed by the members to avoid
their contractual obligations.
- where the company's existed for a fraudulent purpose,
(DDA v.Skipper construction co.ltd.(1996)
- incorporation is against public interest or public policy,
- where incorporation was used to further an illegal or
improper purpose,
- membership falls below the statutory minimum,
- prospectus includes a fraudulent misrepresentation,
- personal liability if the negotiable instrument does not
carry company's name.
- seperate accounts not filed by subsidiaries.
- for investigation of accounts and during winding-up.
| ##''%#
R Registered company ± brought into existence by
registration of documents of formation.
R companies limited by liability± may be limited
either by shares or by guarantee or by both.
- limited by shares, where the liability of the
members is limited by the amount of unpaid
shares held by them, such company is known as
share company; and
- limited by guarantee, where members guarantee
for a specified amount payable at the time of
winding up, such company is known as a
guarantee company.
| ##'
R Onlimited companies ± not having any limit on the liability
of its members. Personal fortune of members can be
called by the liquidator at the time of winding up, to meet
the debt needs of the company.
R A limited and an unlimited company, can be either
private or public company.
- )% -minimum membership is two and
minimum paid-up capital is one lakh rupees.
-limited rights to members and no prospectus issued for
calling public deposits.
- (  minimum paid-up capital of 5 lakh
rupees
- it can invite public subscription to its shares via the
prospectus ± and also arrange capital through private
sources, then no prospectus issued.
- free transfer of shares
| ##'
R Private companies ± no statutory meetings, but the
public companies must hold statutory meetings and
also file reports with the Registrar of Companies.
R Difference with regard to appointment and functioning
of directors.
R A private company has a privilege to issue any kind of
shares and allow disproportionate voting rights.
R A private company can commence business
immediately after incorporation.
R A private company need not maintain an index of
members.
R No restrictions with regard to managerial
remuneration.
%'##
R A charter containing the fundamental conditions for
registration of the company
R t defines and confines the powers of the company
R t explains the objects of formation of the company.
- explains the rights and powers of the shareholders, and
- anyone dealing with the company, can know the
viability of their transaction from the
memorandum.Contains details of the shareholdings
of the members and the basic details of the
company, with the word limited added at the end of
the name,to mention shareholders' limited liability
- clarifies the objects of the company - main objects and
other objects,
- Declaration as to the authorized share capital divided
into fixed accounts.
% )%# #%
A company exists only for the objects which are
expressly stated in the memorandum or are
incidental to the specified objects, and
Anything done outside the express or implied
objects is ultra vires, such acts are null and void
d 
Where a company embarks upon an ultra vires act,
any member can apply for an injunction against
the company
Acts of directors in excess of authority can be
ratified by a general body meeting, provided
there is such a provision in the memorandum.
Lendors of ultra vires loan are secured as creditors.
Memorandum can be altered only in the prescribed
 %'"%%
NAME - special resolution of the General meeting and approved by the
central government, copy of the resolution sent to the Registrar of the
company within 30 days. Change has no effect on the rights and
liabilities of the company.(S.23)
CHANGE OF OFFCE ± within the same city, a board of directors
resolution submitted to the registrar of companies. Change of city, a
special resolution of the shareholders at a general meeting, approved
by the Government and reported to the Registrar.
OBJECTS CLAOSE ± special resolution confirmed by Government.
to carry on its business more economically and efficiently, board of
directors are best positioned to decide the business economics( SC in
Dalmia cements case)
- to attain its main purpose by new or improved means
- to enlarge or change the local area of its operation
- to carry on some business which under existing circumstances may be
combined with existing business
to restrict or abandon any of the objects specified in the memorandum.
 %
- to sell or dispose of the whole or any part of the
undertaking
- to amalgamate with any other company or body of persons
A certified copy of the central government order together
with a printed copy of the altered memorandum to be filed
with the registrar within three months of the passing
thereof.
- Sec.38 - members' liability can be increased with written
approval. ncrease in the liability can be made by way of
subscribing for more shares or by any other method
Sec.94 capital clause can be altered by a resolution passed
in the general meeting:
- to increase its authorised share capital by such amount as
it thinks expedient by issuing fresh shares, and
- to consolidate its share structure.
 %#'##
Regulations that govern the management of its internal affairs and
the conduct of its business
Define the duties, rights, powers and authority of the shareholders
and the directors in their respective capacities and the conduct of
business affairs.
Subordinate to and are controlled by the memorandum, and
cannot supersede the memorandum and its objects.
Registered by a public limited company, signed by the subscribers
to the memorandum.
Articles shall contain:
- the business of the company,
-the capital, and the classes of the shares
- the rights of the shareholders,
- rules regarding allotment, forfeiture and transfer and
transmission of shares, company's lien on shares,
Not to exceed the powers given by the memorandum or be in
conflict with the memorandum
# %
Not in conflict with the Companies Act or any other law.
Nothing illegal, unlawful or against public policy
Must be for the benefit of the company as a whole, even if it
adversely affects a single member(Sidebottom Vs.
Keeshaw Leese &Co. 1920 Ch.154 C.A.)
A registered memorandum and articles bind the member as
if each of them has signed individual covenants, original
and also as altered periodically.
The articles bind the members to each other, and even the
trustees of the members are bound by the articles in their
dealings with the company. (Borland Trustees V.Steel
Bros. Co. Ltd 1901 1 Ch.279)
Directors to act within the confines of powers given in
Articles, but contraventions may be ratified by members at
a later date.
Loss resulting from such contraventions to be made good
from their personal fortune and directors can be made
%'#)%%
When registered, the Memorandum and the Articles of
Association become public documents, and can be
inspected by any person.
Any person contemplating to do business with the company
is presumed and has means to ascertain information
about the company.
n other words, every person dealing with the company is
presumed to have read these two documents and hence,
has notice of the company's affairs. Actual notice is not
necessary, he has constructive notice.
- Kotla Venkataswamy V. Ramamurthy(AR 1934)
%'&%%
This doctrine allows the people dealing with the company to
presume that the officers of the company are acting under
their authorized powers. t is the other side of the
constructive notice doctrine. Outsiders dealing with the
company need not inquire into the regularity of the internal
proceedings.(Royal British Bank V.Tourquand 1856 6 E&B
327)
The doctrine does not apply where the outsider has
knowledge of the irregularity and still acts upon it, or has not
consulted the documents at all.
No application to matters void d  ± fraud, forgery.
For acts ordinarily outside his powers, the person dealing with
him must do a proper check and then act. He cannot claim
benefit of the doctrine otherwise.(A.L.Onderwood V.Bank of
Liverpool(1924 1 KB 775)
"%#
Sec.2(46) ± a share in the capital of the company
- an interest of a member in the company; the right to
receive dividend, vote at meetings, and have a share in
the surplus assets of the company, in the event of winding
up of the company,
- the liability of the member in the company to pay calls on
shares until fully paid up;
- the right to transfer the shares according to the procedure
laid down in the articles.
A share in the hands of the shareholder actually signifies a
bundle of rights and liabilities, but it is not a negotiable
instrument, numbered properly and distinctly.
A share has a nominal value with a distinctive number, the
stock doesn't.
"%#
A share is different from a share certificate, a share being a
percentage of a holding in the capital of the company, and
a certificate being the documentary evidence of the
specified number of shares issued under the common
seal.
A share is also different from the stock, share being the
individual unit and stock being the aggregate volume of
such individual units.
Share cannot be transferred in fractions, a stock can be
transferred in any kind of fractions
Shares can be issued by any company, public or private,
while the public limited company, which is limited by
shares, can issue only stock.
Shares are of equal denomination, stocks can be in different
denominations.
| ##%#'#"%#
R Different types of shares carry different rights and
liabilities.
- preference shares
- equity shares
- cumulative convertible preference shares
R Company law 2000 amendment limited the shares to
two classes only, equity share capital and preference
share capital, each having different voting rights and
rights as to dividend
  |$  - A share which carries a
preferential right in respect of dividends at a fixed rate
or a fixed amount, and
- a preferential right in regard to repayment of capital at the
time of winding up.
Preference shareholders get priority over the equity
shareholders. t can be a participating share in the
%'%%%#"%#
R f the share carries a right to payment of arrears in
dividend from future profits, its a cumulative preference
share, the accumulated arrears get paid out whenever
profits are available. f it doesn't have this right then its
non-cumulative preference share.
R A share issued as redeemable preference share, can be
redeemed on the resolution of the board of directors,
complying to the Articles. f not then it is a irredeemable
preference share.
R Preference shareholders vote only on matters relating to
preference shares.
*#"%#
R No fixed rate of dividend. t is decided at the AGM upon
the recommenation of the BofD after accounting for the
depreciation and transfer of a minimum amount to the
reserves.
R Equity shareholders' voting rights are decided upon the
proportion of the paid-up capital held by them.
R Members holding equity shares with differential rights to
dividend, voting or otherwise, shall be entitled to bonus
and rights issue of the same class.
CCPs- added by the 1985 Min. Of Fin. Notification ± to be
issued for setting up new projects, diversification of
existing projects, working capital requirements, capital
exp.for modernization.
- quantum of CCPs not to exceed equity shares,
- face value of Rs.100 each,
- listed on the stock exchs.
"% ##%#
R Deferred or founders' shares ± issued only by a private
company, normally held by the promoters and directors.
R Non-voting shares ± they carry no voting rights. ncluded by
the 1999 Company Law Amendment,
R Sweat-equity shares ± equity shares issued to employees,
directors at a discount or for a consideration other than cash
for providing know-how or making available PRs or value
additions etc. They are issued after a special resolution
passed by the company in a general meeting, and issued in
accordance with SEB regulations.
R ssue at par ± issued at face value
R ssue at premium ± issued at rate above face value
R ssue at discount ± issued at a discount of not more than
10% and only after one year of commencement of business.
D#"%#+ &"#"%#
D##"%# - Capitalize profits by issuing fully paid-up
shares to the members, thereby transferring the capital
from the profit and loss account to the share capital;
subject to SEB guidelines.
&"##"%# - Existing members have a right to be
offered shares, when the company wants to increase its
subscribed capital; can be issued two years after
incorporation or one year after initial allotment of
shares.
  
 $ |
,-./0 to increase
its authorized share capital
-to consolidate its share capital base
- to convert fully paid-up shares into stock and vice versa
- to sub-divide shares into smaller amount, but the
proportion of paid and unpaid remains the same
%'#"%
Reducing the liability of the members with regard to the
uncalled capital
By returning excess capital - To pay off paid up capital on
the understanding that it may be called again
Write off or cancel capital which has been lost or is not
represented by available assets.
Where there is reduction of capital the company has to apply
to the Company Law Appellate Tribunal
Buy-back of shares by the company - to cancel shares
allotted but not picked up by the members ± dimunition of
share capital

1
  ± paid from current year profits only ± in cash
terms only. Statutory minimum capitalization of profits
and depreciation to be accounted for before dividend rate
is decided upon.
%%&#%# #
R %%&# ± held only by a public
company having share capital, with a 21 day notice
sent to every member along with a statutory report.
Such a report is also sent to the registrar.
R  2%% %%& ± to be held by every
company. AGM shall not be held on a holiday
except under exceptional circumstances.
R 32± all meetings other than AGMs
are called EGMs, for transacting special business
that may arise in between two AGMs.
- % should be given to every member and  %
%3 &% to be circulated to the
members
- Every member entitled to attend and vote shall have a
right to appoint a PROXY
#4%# #
%%#
Motion indicates a proposition made by any member at a
meeting and such a motion shall be put to discussion and
approval before the meeting.
A motion when passed with or without any amendments or
changes is a resolution
A person proposing a motion shall make it in writing and
endorse such motion. He is called the mover of the
motion.
Ordinary resolution ± approved by a simple majority of the
members voting at a general meeting; matters approved
through ordinary resolution relate to alteration of
authorized share capital, declaration of dividend, election
of directors
%# #
Special resolution ± it needs a 21 day notice and a 3 times
majority; matters relating to alteration of objects clause,
change of registered office outside the State, alteration of
Articles, change in company name and reduction of share
capital.
Resolution requiring special notice ± in matters of removal of
directors before their term expires.
A point of order deals with the conduct or procedure of the
meeting. The chairman has to give his ruling ordecision
on a point of order at once. His ruling on such matters is
final.
Minutes of the record shall be maintained in a clear manner
by the secretary of the company, who shall index the
minutes.
#4)%#
s.209- statutory regulation of book-keeping, open for
inspection by members, as well as by the Registrar of
Companies, or an officer of the central government.
Default with compliance of the above rule will lead to
imprisonment of six months and a fine.
Every company shall include a statement of the director's
responsibility in the preparation of accounts, and a
statement from the director that the rules have been
complied with and the statement is fair and true and
accompanied by sufficient care and caution.
S.219 ± 21 days before the meeting the BS and the P&L
account, auditor's and board's reports must be sent to
every shareholder, representatives of such shareholders,
debentureholders, official receiver or assignee of an
insolvent member and the auditor of the company.
#
s.220 ± such BS andP&L account shall be filed with the
registrar in triplicate. Where the AGM does not approve
the accounts and adjourns, the same should be informed
to the Registrar.

- Free and complete access to the books of account,
vouchers etc.
Right to require information and explanation from any
officers of the company.
Entitled to receive notice of the AGM and be heard on any
part of the business which concerns him as auditor.
Ensure that the company's accounts are a true reflection of
its financial status and the BS and P&L account are in line
with the books of account.
% 
R Central government orders special audit,
when,
- when the affairs of the company are not being
managed according to good business
practices
- company is being managed in a manner likely
to cause serious loss to the financial status to
the company
- likely to affect the financial solvency of the
company
R Special auditor has all the powers of an
auditor, and he has to submit the report to the
central government. While doing such audit
&%%'
Directors are agents of the company. They shall conform to the
defined functions, only then the company's liability arises;
cannot contract in their own name.
They are trustees only to the extent of holding the company's
money in their hands.
A public company - minimum of three directors, while two are
sufficient for a private company. No body corporate can be a
director.
They are appointed by the subscribers to the memorandum, or
the general meeting of the company of the cental government.
Directors retire at every AGM, one-third retiring every year by
rotation - can be reappointed for a fresh term with member
voting to order a fresh vote, unless himself withdrawn or
otherwise disqualified.
%#
Directors can also be appointed by the B of D,
- additional directors,
- filling up casual vacancies (s.262)
- alternate directors
Appointment by the central government ± on the suggestion
of the tribunal, if its necessary to protect the interests of
the company or the shareholders or in public interest.
Even third parties like lenders, financial institutions, can
appoint directors.
Can be a director in not more than 20 companies at the
same time, disregarding the private companies,non-profit
organisations etc.
Fails to obtain the prescribed share qualification within the
stipulated time, he stands disqualified.
%#
Conviction in offences bars a person from acting as a director.
Central government can remove a director if such person is not
acting in the interests of the company or under good business
principles.
No other remuneration from the company other than directorial
remuneration, except if he is the managing director. No
compensation for loss of office.
2
2
| ± Maximum term of five years.
Disqualified if he is an undischarged insolvent or has at any
time been adjudged insolvent, any time suspended payments
to his creditors, or is convicted by court for the offence of
moral turpitude. A whole-time director cannot be in such role in
more than one company. The term of the whole-time director
is not tenured.
Liability to the company ± breach of fiduciary duty, ultra-vires
acts, negligence, breach of trust and misfeasance.
&
Compulsory winding up
Voluntary winding up
winding up by a tribunal -
When there is a special resolution that it be wound up by
tribunal. Tribunal need not act if such winding up is
agianst public interest.
- failure to commence business
- reduction in membership
- inability to pay debts
- just and equitable
Where the substratum of the company has gone ± the
company has failed its objects
Complete deadlock in the management
&
Company was formed for fraudulent or illegal purposes.
Where the majority has adopted an oppressive attitude
towards the minority.
The business of company could not carried further without
loss.
Where a private company is in substance a partnership.
Where the requirments of an investigation demand winding
up.
Default in filing BS with the registrar for five consecutive
years.
Company has acted against the sovereignity and interests of
the country.
Where the tribunal is of the opinion that the company be
wound up (added by the 2002 Amendment Act).
&
Who may petition
- the Company
- the creditor's petition
- contributors
- a combination of creditors and contributors
- registrar
- any person authorized by the central government
- the official liquidator
Statement of affairs to be filed on the winding up of the
company
Petition to be made to the tribunal which will decide and
order a possible winding up, and can make any interim
orders also before it makes a winding up order.
Tribunal sends the intimation to the official liquidator and the
Registrar with a certified copy.
&
Registrar makes a note in his record and in the official
gazette
Order of winding up is deemed to be a notice of discharge to
the officers and employees of the company.
The interests of the creditors and all the contributors.
The powers of the directors are exercised by the official
liquidator
Limitation period ceases to run in favour of the company
Any dispositon of property done after the winding up order
stands void - Any sale without tribunal's permission after
the order is void
Any floating charge created, with government's permission
is void.
Liquidator can order inspection of books - Create a
committee of inspection - Adjustment of contributories'
payments
&
Power to order public examination of the promoters,
directors and such other officials of the company
Power to summon persons suspected of having the
property of the company
Power to arrest a contributory intending to abscond
Power to order dissolution of the company
Voluntary winding up
- if the general meeting of the company so approves by an
ordinary resolution
Company must cease to carry on business except for the
beneficial winding up process
All transfer of shares and alterations in the status of
members, after the winding up resolution stand void.
On the appointment of a liquidator, all powers of the BofD
are transferred to him.