Corporate Laws: Understanding A Must For Any Corporate Citizen

CORPORATE LAWS
UNDERSTANDING A MUST FOR ANY

CORPORATE CITIZEN
CORPORATE LAWS
• MEANING AND ITS NATURE-1 LECTURE
• THE COMPANIES ACT-6 LECTURES
• CONTRACT ACT-6 LECTURES
• NEGOTIABLE INSTRUMENT ACT-1 LECTURE
• SALE OF GOODS ACT-1 LECTURE
• LIMITED LIABILITY PARTNERSHIP ACT-1 LECTURE
• COMPETITION ACT-1 LECTURE
• RIGHT TO INFORMATION ACT- 1 LECTURE
• INTELLECTUAL PROPERTY RIGHTS LAW AND
COPYRIGHT ACT-1 LECTURE
• TRADEMARK LAW-1 LECTURE
LAW-MEANING AND ITS NATURE
• BODY OF RULES
• FOR GUIDANCE AND CONDUCT OF PERSONS-
BOTH HUMAN AND ARTIFICIAL
• LAW IS IMPOSED TO BRING ORDER IN GROUP
• ENFORCED BY EXECUTIVE
• LAW PRESUPPOSES STATE
• QUITE FLEXIBLE AND CHANGING
• MADE TO SERVE SOME PURPOSE-SOCIAL,
ECONOMICAL OR POLITICAL
• LAW VS. MORALITY
• IGNORANCE OF LAW IS NO EXCUSE
• CLASSIFICATION
– PUBLIC LAW AND PRIVATE LAW
• PUBLIC LAW IS CONSTITUTIONAL LAW,
ADMINISTRATIVE LAW, CRIMINAL LAW, MUNICIPAL
LAW, INTERNATIONAL LAW-ENFORCED ON BEHALF OF
OR IN THE NAME OF THE STATE
• PRIVATE LAW-REGULATES THE RELATIONS OF THE
CITIZENS-LAW OF CONTRACT, PROPERTY, SUCCESSION
• CLASSIFICATION
– CRIMINAL LAW AND CIVIL LAW
– SUBSTANTIVE LAW AND PROCEDURAL LAW
• SOURCES OF INDIAN LAW
– PRIMARY-CUSTOMS, JUDICIAL PRECEDENTS,
STATUTES, PERSONAL LAW
– SECONDARY-ENGLISH LAW, JUSTICE, EQUITY AND
GOOD CONSCIENCE
• MERCANTILE OR BUSINESS LAWS
– REGULATION OF RESTRICTIVE AND UNFAIR TRADE PRACTICES
– FOREIGN EXCHANGE MANAGEMENT AND REGULATION
– INSOLVENCY
– REGULATION OF COMPANIES
– NEGOTIABLE INSTRUMENTS ACT
– SALE OF GOODS ACT
– CONTRACT ACT
– IMPORT AND EXPORT REGULATIONS
– MORTGAGE
– PARTNERSHIP-LLP
– REGULATION OF ESSENTIAL COMMODITIES
– REGULATION AND DEVELOPMENT OF INDUSTRY
– REGULATION OF FOREIGN EXCHANGE AND FOREIGN CAPITAL
– EXCISE, IMPORT DUTY, CUSTOMS, CORPORATE TAX ETC
• ESSENTIALS OF LAW
– PREDICTABILITY
– FLEXIBILITY
– REASONABLE APPLICATION AND COVERAGE
• PROCESS OF PASSING A STATUTE IN INDIA
– ORDINARY BILLS-CAN ORIGINATE IN ANY HOUSE
– MONEY BILL- CAN ORIGINATE ONLY IN LOK SABHA
THE COMPANIES ACT, 1956 WITH
AMENDMENTS TILL DATE
• DEFINITION AND NATURE OF COMPANY
• DEFINITION
– SEC. 3(1)(i) OF ACT-A COMPANY FORMED OR
REGISTERED UNDER THE ACT OR AN EXISTING
COMPANY
– HANEY-A COMPANY IS AN ARTIFICIAL PERSON
CREATED BY LAW, HAVING A SEPARATE ENTITY,
WITH A PERPETUAL SUCCESSION AND COMMON
SEAL
• DEFINITION
– LORD JUSTICE LINDLEY-
• AN ASSOCIATION OF PERSONS
• WHO CONTRIBUTE MONEY OR MONEY’S WORTH TO A COMMON
STOCK
• AND EMPLOY IT IN SOME TRADE OR BUSINESS
• AND WHO SHARE THE PROFIT OR LOSS ARISING THEREFROM
• THE COMMON STOCK SO CONTRIBUTED IS DENOTED IN MONEY
AND IS THE CAPITAL OF THE COMPANY
• THE PERSONS WHO CONTRIBUTE IT OR TO WHOM IT BELONGS
ARE MEMBERS
• THE PROPORTION OF CAPITAL TO WHICH EACH MEMBER IS
ENTITLED IS HIS SHARE
• SHARES ARE ALWAYS TRANSFERABLE ALTHOUGH THE RIGHT TO
TRANSFER THEM IS OFTEN MORE OR LESS IS RESTRICTED
• CHARACTERISTICS/ ADVANTAGES OF COMPANY
– INCORPORATED ASSOCIATION
– ARTIFICIAL LEGAL PERSON
– SEPARATE LEGAL ENTITY-SALOMAN VS. SALOMAN &
COMPANY CASE
– PERPETUAL SUCCESSION
– COMMON SEAL
– LIMITED LIABILITY
– TRANSFERABILITY OF SHARES
– SEPARATE PROPERTY
– CAPACITY TO SUE AND LIABILITY TO BE SUED
• DISADVANTAGES
– EXCESSIVE FORMALITIES AND EXPENDITURE
– SEPARATION OF OWNERSHIP AND CONTROL
– CORPORATE SCAMS
– COMPANY IS NOT A CITIZEN AND CANNOT CLAIM
FUNDAMENTAL RIGHTS
– SEPARATE ENTITY VIOLATED BY LIFTING
CORPORATE VEIL
• CORPORATE VEIL LIFTED IN FOLLOWING CIRCUMSTANCES
– REDUCTION IN MINIMUM NUMBER OF MEMBERS
– MIS STATEMENT IN THE PROSPECTUS
– FAILURE TO REFUND SHARE APPLICATION MONEY
– FAILURE TO DELIVER SHARE CERTIFICATE WITHIN PRESCRIBED TIME
– MISDESCRIPTION OF COMPANY NAME
– RELATIONSHIP OF HOLDING AND SUBSIDIARY COMPANY
– TO INVESTIGATE OWNERSHIP OF COMPANY
– BUSINESS OF COMPANY CARRIED FOR FRAUDULENT PURPOSES
– COMPANY HAVING ENEMY CHARACTER
– FOR PREVENTING FRAUD AGAINST REVENUE
– WHEN COMPANY IS SHAM
– TO ASCERTAIN TECHNICAL COMPETENCE
– TO CHECK ECONOMIC OFFENCE
FORMATION OF A COMPANY
• NAME APPROVAL
• GETTING MEMORANDUM AND ARTICLES OF
ASSOCIATION PRINTED
• SUBSCRIBING MEMORANDUM AND ARTICLES
• DEPOSITING REQUISITE FEE WITH DOCUMENTS AND
AFFIDAVIT WITH ROC
– MEMORANDUM & ARTICLES
– PROPOSED AGREEMENT TO APPOINT MD
– CONSENT OF DIRECTORS
– STATUTORY DECLARATION THAT ALL REQUIREMENTS OF
ACT FOR REGISTRATION HAVE BEEN COMPLIED WITH
FORMATION OF A COMPANY
• ISSUE OF CERTIFICATE OF INCORPORATION BY
REGISTRAR
– ON RECEIVING IT COMPANY BECOMES BODY
CORPORATE WITH PERPETUAL SUCCESSION AND
COMMON SEAL
COMMENCEMENT OF BUSINESS
• A PRIVATE LIMITED COMPANY AND PUBLIC
COMPANY NOT HAVING SHARE CAPITAL CAN
START BUSINESS IMMEDIATELY AFTER GETTING
CERTIFICATE OF INCORPORATION
• PUBLIC COMPANY WITH SHARE CAPITAL HAS TO-
– FILE PROSPECTUS OR STATEMENT IN LIEW OF
PROSPECTUS
– STATUTORY DECLARATION THAT DIRECTORS HAVE
TAKEN AND PAID FOR QUALIFICATION SHARES
AFTER THIS CERTIFICATE OF COMMENCEMENT OF
BUSINESS IS ISSUED BY ROC
MEMORANDUM OF ASSOCIATION
• LIFE GIVING DOCUMENT
• CONSISTS OF FUNDAMENTAL CONDITIONS
UPON WHICH COMPANY IS ALLOWED TO BE
INCORPORATED
• SPECIFIES THE BOUNDARIES OF COMPANIES
WORKING
• CLAUSES
– NAME
– REGISTERED OFFICE-CO. MUST HAVE REGISTERED OFFICE
ADDRESS EITHER FROM DATE OF COMMENCEMENT OF
BUSINESS OR WITHIN 30 DAYS OF INCORPORATION
WHICHEVER IS EARLIER- IT IS PLACE WHERE STATUTORY
BOOKS OF CO. ARE KEPT AND GENERAL MEETINGS ARE
HELD
– OBJECTS CLAUSE-MAIN/ OTHERS
– LIABILITY CLAUSE
– CAPITAL CLAUSE
– SIGNATORY TO THE MEMORANDUM WITH NO. OF SHARES
TAKEN
• ULTRA VIRES DOCTRINE-TRANSACTIONS
BEYOND THE SCOPE OF MEMORANDUM ARE
ULTRA VIRES AND CAN NOT BE RATIFIED EVEN
BY THE WHOLE BODY OF MEMBERS
• CHANGE IN NAME, REGISTERED OFFICE,
OBJECTS, CAPITAL-PROCESS
ARTICLES OF ASSOCIATION
• LAYS DOWN RULES AND REGULATIONS FOR
INTERNAL MANAGEMENT
• FACILITATE THE OBJECTS SET OUT IN
MEMORANDUM
• DEFINES DUTIES, RIGHTS AND POWERS OF
GOVERNING BODY
• PROVIDES MODE AND FORM IN WHICH
BUSINESS OF THE COMPANY IS TO BE
CARRIED ON
• CONTENTS
– SHARE CAPITAL AND RIGHTS ATTACHED TO DIFFERENT CLASSES OF SHARES
– ALLOTMENT OF SHARES
– ISSUE OF CERTIFICATE AND WARRANTS
– CALLS ON SHARES
– TRANSFER AND TRANSMISSION OF SHARES
– FORFEITURE OF SHARES
– ALTERATION OF SHARE CAPITAL
– GENERAL MEETINGS
– APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
– DEVIDENDS, RESERVES ETC.
– ACCOUNTS AND AUDIT
– COMMON SEAL OF THE COMPANY
– VOTING RIGHTS AND PROXIES
– WINDING UP
– ADOPTION AND EXECUTION OF PRELIMINARY CONTRACTS
– BOARD MEETINGS
– PAYMENT OF INTEREST OUT OF CAPITAL
• ALTERATION OF ARTICLES-BY PASSING SPECIAL
RESOLUTION AND FILING WITH ROC WITHIN 30 DAYS-
SUBJECT TO FOLLOWING LIMITATIONS
– NOT INCONSISTENT WITH MOA
– NOT INCONSISTENT WITH COMPANIES ACT
– ILLEGAL OR AGAINST PUBLIC POLICY
– MADE IN GOOD FAITH AND FOR BENEFIT OF COMPANY
– MUST NOT CONSTITUTE FRAUD ON MINORITY
*FURTHER CENTRAL GOVT. APPROVAL NECESSARY IF

CONVERSION OF PUBLIC LTD CO. INTO PRIVATE AND FOR
ALTERATION IN TERMS AND CONDITIONS IN APPOINTMENT OR
REAPPOINTMENT OF WHOLE TIME DIRECTOR OR DIRECTOR
NOT LIABLE TO RETIRE BY ROTATION
MEMORANDUM AND ARTICLES
• DISTINCTION
– SCOPE
– NATURE
– MANDATORY
– ALTERATION CONVENIENCE
– RATIFICATION
– REMEDY TO OUTSIDERS FOR ULTRA VIRES ACTS
• LEGAL EFFECT
– BIND COMPANY TO MEMBERS
– BIND MEMBERS TO COMPANY
– BIND MEMBERS INTER SE
– DO NOT BID THE COMPANY OR MEMBERS TO OUTSIDERS
KINDS OF COMPANIES
• MODE OF INCORPORATION
– Statutory Companies-under special Act passed by
central or state legislature-Life Insurance
Corporation of India, Food Corporation of India,
Reserve Bank of India-these are governed by
respective Acts and they do not require to have
Memorandum or Articles
– Registered Companies-under the Companies Act
1956
KINDS OF COMPANIES
• ACCORDING TO LIABILITY OF MEMBERS
– LIMITED BY SHARES AND GUARANTEE
– UNLIMITED COMPANIES
KINDS OF COMPANIES
• ACCORDING TO NUMBER OF MEMBERS
– PRIVATE COMPANY AND PUBLIC COMPANY
• PRIVATE COMPANY
– MINIMUM PAID UP CAPITAL NOT LESS THAN RS. 1 LAC
– RESTRICTION ON RIGHT TO TRANSFER SHARES
– MAX. 50 MEMBERS EXCLUDING PAST/ PRESENT EMPLOYEES
– PUBLIC INVITATION TO SUBSCRIBE SHARES OR DEBENTURES
PROHIBITED
– DOES NOT ACCEPT DEPOSITS FROM PERSONS OTHER THAN
ITS MEMBERS, DIRECTORS OR THEIR RELATIVES
– MUST HAVE WORDS “PVT. LTS.” AS LAST PART OF ITS NAME
PUBLIC COMPANY IS ONE WHICH IS NOT PRIVATE COMPANY
KINDS OF COMPANIES
• HOLDING AND SUBSIDIARY COMPANY
– A COMPANY IS DEEMED TO BE SUBSIDIARY
COMPANY
• WHERE ANOTHER COMPANY CONTROLS MAJORITY OF
COMPOSITION OF ITS BOARD OF DIRECTORS
• WHERE ANOTHER COMPANY HOLDS MORE THAN 50%
OF ITS NOMINAL VALUE OF EQUITY SHARE CAPITAL
• WHERE IT IS SUBSIDIARY OF ANOTHER COMPANY’S
SUBSIDIARY
KINDS OF COMPANIES
• GOVERNMENT COMPANY
– ANY COMPANY IN WHICH NOT LESS THAN 51%
PAID UP SHARE CAPITAL IS HELD BY CENTRAL OR
STATE OR PARTLY BY CENTRAL AND PARTLY BY
STATE GOVERNMENT
PROSPECTUS
• ANY DOCUMENT DESCRIBED OR ISSUED AS A
PROSPECTUS AND INCLUDES ANY NOTICE,
CIRCULAR, ADVERTISEMENT OR OTHER
DOCUMENT INVITING DEPOSIT FROM THE
PUBLIC OR INVITING OFFERS FROM PUBLIC
FOR SUBSCRIPTION OR PURCHASE OF ANY
SHARES IN OR DEBENTURES OF A BODY
CORPORATE
PROSPECTUS
• ABRIDGED PROSPECTUS Sec 56(3)
– Summary of full prospectus containing all the
salient particulars
– Contained in form 2A
– Such as name, address of registered office, terms
of issue, company management, financial
performance, etc.
PROSPECTUS
• SHELF PROSPECTUS
– BY FINANCIAL INSTITUTION OR BANK
– FOR ISSUE OF LOAN/ SHARES SECURITIES TO
PUBLIC
– VALID FOR 1 YEAR
– EACH TIME SECURITIES ISSUED INFORMATION
MEMORANDUM TO BE FILED WITH SEBI/
REGISTRAR
PROSPECTUS
• RULES REGARDING ISSUE OF PROSPECTUS
– FILED WITH SEBI 21 DAYS BEFORE FILING WITH ROC. ALSO
DRAFT PROSPECTUS TO BE FILED WITH STOCK EXCHANGES
WHERE LISTING OF SECURITIES PROPOSED
– IT MUST BE DATED
– IT MUST BE REGISTERED
– TERMS OF CONTRACTS MENTIONED IN PROSPECTUS NOT TO BE
VARIED WITHOUT APPROVAL OF GENERAL BODY APPLICATION
FORM TO BE ACCOMPANIED BY ABRIDGED PROSPECTUS
– PROHIBITION ON APPLYING IN FICTITIOUS NAMES-
IMPRISONMENT 5 YEARS
– ISSUED WITHIN 90 DAYS OF SUBMISSION TO ROC, OTHERWISE
IT LAPSES
PROSPECTUS
• CONTENTS
– GENERAL INFORMATION-NAME, REGISTERED OFFICE, CONSENT OF
CENTRAL GOVERNMENT, LICENCE, NAME OF REGIONAL STOCK
EXCHANGE AND OTHER EXCHANGES WHERE LISTING PROPOSED, DATE
OF OPENING/ CLOSING/ EARLIEST CLOSING, NAMES OF AUDITORS,
MERCHANT BANKER, REGISTRAR TO ISSUE, BANKERS, UNDERWRITERS
– CAPITAL STRUCTURE
– TERMS OF PRESENT ISSUE
– PARTICULARS OF ISSUE
– COMPANY MANAGEMENT AND PROJECT
– COMPANY UNDER SAME MANAGEMENT
– PENDING LITIGATION
– MANAGEMENT PERCEPTION OF RISK FACTORS LIKE SENSITIVITY TO
FOREIGN EXCHANGE RATE FLUCTUATION, RAW MATERIAL
AVAILABILITY, MARKETING OF PRODUCT, COST OVERRUN ETC.
PROSPECTUS
• BOOK BUILDING
• MISSTATEMENT IN PROSPECTUS-
– False statement
– Omission of essential facts
– Misleading statement or half truth
– Ambiguous statement
– Misrepresentation of facts
PROSPECTUS
• Liabilities or remedies for mis- statements
– Right to recession
– Right to damages for fraud
– Liability of directors/ promoters and expert
• DEFENCES AVAILABLE
– WITHDRAWL OF CONSENT
– ABSENCE OF CONSENT
– IGNORANCE OF UNTRUE STATEMENTS
– BONAFIDE BELIEF IN TRUTH OF STATEMENT
– STATEMENT BASED ON EXPERTS’ AUTHORITY
– STATEMENT WAS CORRECT AND FAIR COPY OF OFFICIAL DOCUMENT
SUIT MAY ALSO LIE AGAINST ABOVE FOR FRAUDULENT REPRESENTATION
LIABILITY OF DIRECTORS FOR OMISSION TO INCLUDE MATTERS SET OUT U/S
56
PROSPECTUS
• LIABILITY FOR UNTRUE STATEMENT
– IMPRISONMENT UPTO 2 YEARS OR FINE RS. 50000 OR BOTH
• PENALTY FOR FRAUDULENT INDUCING A PERSON TO
INVEST MONEY
– IMPRISONMENT UPTO 5 YEARS OR FINE RS. 100000 OR BOTH
• LIABILITY FOR PURCHASING SHARES IN FICTITIOUS NAME
– IMPRISONMENT UPTO 5 YEARS
• FAILURE TO ISSUE ABRIDGED PROSPECTUS WITH
APPLICATION FORM
– FINE UPTO RS. 50000
PROSPECTUS
• STATEMENT IN LIEU OF PROSPECTUS
– NECESSARY CAPITAL RAISED FROM FRIENDS,
RELATIVES AND UNDERWRITERS AND PUBLIC NOT
INVITED
– NO NEED TO ISSUE PROSPECTUS BUT STATEMENT IN
LIEU OF PROSPECTUS CONSISTING OF SCHEDULE III
INFORMATION TO BE FILED WITH ROC
– PRIVATE COMPANY NEITHER TO ISSUE PROSPECTUS
OR FILE STATEMENT IN LIEU OF PROSPECTUS
SHARE AND SHARE CAPITAL
• INTEREST OF A SHAREHOLDER IN A COMPANY
• BUNDLE OF RIGHTS AND LIABILITIES –ENJOY
CONTRACTUAL RIGHTS AND RIGHTS UNDER
COMPANIES ACT
• RIGHT TO DIVIDEND , TO VOTE, TO ATTEND
GENERAL MEETINGS ETC.
• KINDS OF SHARES
– EQUITY SHARES
• NO PREFERENCE , EQUITABLE RIGHTS
• ALWAYS IRREDEMABLE
• NORMAL VOTING RIGHTS
– PREFERENCE SHARES
• CUMULATIVE AND NON CUMULATIVE
• PARTICIPATING AND NON PARTICIPATING
• REDEEMABLE AND NON REDEEMABLE
– DEFFERED SHARES
• FOUNDER SHARES ISSUED TO PROMOTERS
• CARRY DISPROPORTIONATE VOTING RIGHTS
• ONLY INDEPENDENT PRIVATE COMPANY CAN ISSUE
• PURCHASE OF OWN SHARES BY COMPANY
SEC. 77
– NO COMPANY CAN PURCHASE, EXCEPT
• WHERE CAPITAL REDUCED IN PURSUATION OF SEC.
100-104
• FOR PREVENTION OF OPPRESSION AND
MISMANAGEMENT
• POWER UNDER SEC. 77A
– TO IMPROVE SHAREHOLDERS’ WEALTH
– TO PREVENT HOSTILE TAKEOVER BID
– IMPROVE EPS AND PUSH UP MARKET PRICE
• REQUIREMENTS TO BUY BACK U/S 77A
– BUY BACK FROM ITS FREE RESERVES, SECURITIES PREMIUM ACCOUNT, PROCEEDS FROM ANY
OTHER SHARES OR SPECIFIED SECURITIES
– MUST BE AUTHORISED BY ARTICLES OF CO.
– UPTO 10% OF PAID UP CAPITAL AND FREE RESERVES BUY BACK WITH BOARD RESOLUTION
ONLY
– BEYOND THIS SPECIAL RESOLUTION IN GENERAL MEETING
– MAX. BUY BACK 25% OF TOTAL PAID UP CAPITAL AND FREE RESERVES BUT NOT EXCEEDING
25% OF TOTAL PAID UP EQUITY CAPITAL IN THAT FINANCIAL YEAR
– AFTER BUY BACK RATIO OF DEBT NOT TO EXCEED TWICE OF CAPITAL AND FREE RESERVES
– SHARES AND SECURITIES FOR BUY BACK SHOULD BE FULLY PAID UP
– BUY BACK TO BE IN ACCORDANCE WITH SEBI GUIDELINES\
– BUY BACK TO BE COMPLETED IN 12 MONTHS FROM PASSING BOARD RESOLUTION/ SPECIAL
RESOLUTION AS THE CASE MAY BE
– BUY BACK CAN BE MADE FROM EXISTING SECURITIES HOLDERS ON PROPORTIONATE BASIS,
FROM OPEN MARKET PURCHASES, FROM ODD LOTS OF LISTED COMPANY, FROM EMPLOYEES
– DECLARATION OF SOLVENCY SIGNED BY TWO DIRECTORS INCLUDING 1 MANAGING DIRECTOR
TO BE FILED WITH ROC AND SEBI DECLARING THE FINANCIAL SOUNDNESS OF COMPANY TO
MEET ITS OBLIGATION AND THAT IN ONE YEAR FROM DECLATION THE COMPANY WILL NOT
BE INSOLVENT
REQUIREMENTS TO BUY BACK U/S 77A
*PHYSICAL DESTRUCTION OF SECURITIES IN 7 DAYS OF
COMPLETION OF BUY BACK
*NO FURTHER SHARE ISSUE WITHIN 24 MONTHS FROM BUY
BACK EXCEPT BONUS ISSUE, CONVERSIONS, STOCK OPTIONS
*MAINTENANCE OF REGISTER OF SECURITIES PURCHASED,
CONSIDERATION PAID AND DATE OF CANCELLATION
*FILING OF RETURN OF BUY BACK WITH ROC AND SEBI IN
PRESCRIBED FORMS IN 30 DAYS OF COMPLETION OF BUY BACK
*NON COMPLIANCE OF ABOVE COMPANY AND EVERY OFFICER
LIABLE TO IMPRISONMENT UPTO 2 YEARS OR FINE UPTO RS.
50000 OR BOTH
• UNDERWRITING COMMISSION
– AGREEMENT TO TAKE UNSUBSCRIBED SHARE
CAPITAL
– INCREASES PUBLIC CONFIDENCE
– SECURITY TO OFFERER
– COMMISSION 5% ON SHARES AND 2.5% ON
DEBENTURES MAX.
– FULL DISCLOSURE IN PROSPECTUS OR STATEMENT
IN LIEU OF PROSPECTUS
• ISSUE OF SECURITIES AT PREMIUM SEC 78
– ISSUE AT A HIGHER PRICE THAN FACE VALUE
– AMOUNT OF PREMIUM TO BE TRANSFERRED TO
SHARE PREMIUM ACCOUNT
– IT CAN BE USED TO ISSUE FULLY PAID UP BONUS
SHARES, WRITE OFF PRELIMINARY EXPENSES, TO
WRITE OFF COMMISSION, EXPEMSES OR DISCOUNT
ON ISSUE OF SHARES OR DEBENTURES OF COMPANY,
TO PROVIDE FOR PREMIUM PAYABLE ON
REDEMPTION OF PREFERENCE SHARES OR
DEBENTURES OR TO BUY BACK SHARES UNDER
SECTION 77A
• ISSUE OF SHARES AT A DISCOUNT SEC. 79
– MUST BE OF CLASS ALREADY ISSUED
– ONE YEAR ELAPSED FROM COMMENCEMENT OF
BUSINESS ENTITLEMENT
– AUTHORISED BY ORDINARY RESOLUTION OF
COMPANY
– DISCOUNT RATE NOT TO EXCEED 10% UNLESS
AGREED BY NATIONAL COMPANY TRIBUNAL BOARD
– ISSUE TO BE MADE IN 2 MONTHS OF RESOLUTION OR
CLB APPROVAL UNLESS EXTENDED NY CLB
– PROSPECTUS TO INCLUDE DETAILS
– NOT APPLICABLE TO DEBENTURES
• ISSUE OF BONUS SHARES
– FREE OF COST IN FORM OF FULLY PAID UP SHARES
– ISSUED TO EXISTING MEMBERS IN PROPORTION OF THEIR
HOLDING
– SHARE CAPITAL INCREASES WHILE ASSETS REMAIN INTACT
– TERMED AS CAPITALIZATION OF UNDISTRIBUTED PROFITS
– CAPITAL REDEMPTION RESERVE/ SECURITIES PREMIUM
RESERVE/ GENERAL RESERVE/ OTHER FREE RESERVES CAN
BE USED FOR THIS
– ARTICLES MUST PERMIT ISSUE OF BONUS SHARES
– DIRECTORS AND SHAREHOLDERS APPROVAL MUST
– IN ACCORDANCE WITH SEBI GUIDELINES WHEREEVER
APPLICABLE
• SEBI GUIDELINES FOR BONUS ISSUE
– PROVISIONS IN ARTICLES
– DECISION IMPLEMENTED IN 6 MONTHS OF APPROVAL BY BOARD
– NO REVERSAL OF DECISION
– NO BONUS ISSUE WITH 12 MONTH OF ANY PUBLIC/ RIGHT ISSUE
– GUIDELINES APPLICABLE TO LISTED COMPANY ONLY
– RESERVES CREATED OUT OF REVALUATION NOT TO BE USED
– DECLARATION OF BONUS IN LIEU OF DIVIDEND NOT ALLOWED
– NO BONUS ISSUE IF DEFAULT IN PAYMENT OF STATUTORY DUES OF
EMPLOYEES LIKE PF
– NO DEFAULT BY COMPANY IN PAYMENT OF INTEREST/PRINCIPAL OF
FIXED DEPOSITS/ DEBENTURES
– NO BONUS ISSUE IF IT WILL DILUTE VALUE OR RIGHT OF CONVERTIBLE
DEBENTURE HOLDERS (FULLY OR PARTLY CONVERTIBLE)
• SWEAT EQUITY
– ISSUED TO EMPLOYEES/ DIRECTORS AT A DISCOUNT TO MARKET
PRICE OR IN EXCHANGE OF TECHNICAL KNOW HOW OR INTELLECTUAL
PROPERTY RIGHTS
– NO INDEPENDENT CATEGORY OF SHARES BUT SAME EQUITY SHARES
– MUST BE OF CLASS ALREADY ISSUED
– 1 YEAR ELAPSED FROM ENTITLEMENT TO COMMENCE BUSINESS
– ISSUE AUTHORISED BY SPECIAL RESOLUTION OF MEMBERS
– MADE IN ACCORDANCE WITH SEBI GUIDELINES IN CASE OF LISTED
SHARES
– IF SWEAT EQUITY TO PROMOTERS THEN ORDINARY RESOLUTION
ALSO PASSED
– RESOLUTION TO REMAIN VALID FOR 12 MONTHS
– SHARES SUBJECT TO LOCK IN FOR 3 YEARS
• ALTERATION IN SHARE CAPITAL SEC. 94
– INCREASE BY ISSUING NEW SHARES
– CONSOLIDATE OR SUB-DIVIDE
– CANCEL THE SHARES NOT TAKEN UP
ABOVE BY ORDINARY RESOLUTION
• VOTING RIGHTS
– EQUITY SHAREHOLDERS HAVE RIGHT TO VOTE ON EVERY
RESOLUTION IN GENERAL MEETING-ON POLL RIGHT IN
PROPORTIONATE OF CAPITAL SUBSCRIBED
– PREFERENCE SHAREHOLDERS
• NORMALLY NO RIGHT TO VOTE
• CAN VOTE ON RESOLUTIONS WHICH AFFECT THEIR RIGHTS, FOR
EXAMPLE RESOLUTION FOR WINDING UP
• ALSO CUM PREF SHAREHOLDERS HAVE 2 YEARS ARREAR DIVIDEND
• ALSO NON CUM PREF SHAREHOLDERS WHEN DIVIDEND BEFORE
MEETING ARREAR FOR 2 YEARS OR 3YEARS IN BLOCK OF 6 YEARS
• IN SAME PROPORTION AS PAID UP PREF. SHARE CAPITAL BEARS TO
EQUITY SHARE CAPITAL
• FORFEITURE OF SHARES
– FOR NON PAYMENT OF CALLS IN RESPECT
THEREOF
– PROVISION IN ARTICLES NECESSARY
– MINIMUM 14 DAYS NOTICE WITH A RIDER THAT IF
NOT PAID IN 14 DAYS SHARES WILL BE FORFEITED
– RESOLUTION OF BOARD REQUIRED
– IN GOOD FAITH
• EFFECTS OF FORFEITURE
– TERMINATION OF MEMBERSHIP
– CESSATION OF RIGHTS AND CLAIMS IN RESPECTS
OF SUCH SHARES
– FORFEITED SHARES BECOMES PROPERTY OF
COMPANY
– SUBSISTENCE OF LIABILITY IF WINDING UP
COMMENCES WITHIN 1 YEAR
• RE ISSUE OF FORFEITED SHARES-AT A PRICE
WHICH WAS UNPAID OR MORE- EXCESS TO BE
TRANSFERRED TO SHARE PREMIUM ACCOUNT
• ANNULMENT OF FORFEITURE-FOR BONAFIDE
CAUSE
• CALLS ON SHARES
– BY MEANS OF BOARD RESOLUTION SEC 292(1)(a)
– Resolution to provide time and place of payment
– BONAFIDE IN THE INTEREST OF COMPANY
– UNIFORM BASIS
– SEBI GUIDELINES-UPTO RS. 50 CRORE ISSUE FULL AMOUNT
ON APPLICATION; 50-500 CRORES ENTIRE SUBSCRIPTION
TO BE CALLED UP IN 12 MONTHS FROM DATE OF
ALLOTMENT
– >500 CR. ISSUE 25% PAYMENT ON APPLICATION,
ALLOTMENT, AND EACH CALL MAXIMUM
– PAYMENT OF INTEREST/ DIVIDEND ON ADVANCE CALL
MONEY
• SHARE CERTIFICATE
– SEC 84-ISSUED BY COMPANY UNDER COMMON
SEAL SPECIFYING NUMBER OF SHARES AND
AMOUNT PAID
– TO BE ISSUED IN 3 MONTHS FROM DATE OF
ALLOTMENT OR 2 MONTHS OF APPLICATION FOR
TRANSFER
• RIGHTS OF MEMBERS
– INDIVIDUALLY
• RIGHTS SHARES
• TRANSFER SHARES
• VOTE
• OBTAIN COPIES OF MEMORANDUM AND ARTICLES, BALANCE SHEET, RESOLUTIONS AND
MINUTES
• TO RECEIVE SHARES
• DEMAND POLL
• RECEIVE DIVIDEND, BONUS
• PRESENT PETITION OF WINDING UP
– GROUP RIGHTS
• APPOINT DIRECTORS AND AUDITORS
• DEMAND POLL
• REQUISITION OF EXTRA ORDINARY GENERAL MEETING
• ALTER MEMORANDUM AND ARTICLES
• REQUEST GOVERNMENT TO INVESTIGATE AFFAIRS OF COMPANY
• TO APPLY TO TRIBUNAL FOR WINDING UP
• TRANSFER AND TRANSMISSION OF SHARES
– MOVEABLE PROPERTY
– TRANSFERABLE AS PROVIDED IN ACT AND
ARTICLES
– BY SALE OR OTHERWISE
– SHARES OF LISTED AND PUBLIC LIMITED
COMPANY ARE FREELY TRANSFERABLE
– BY MEMBER OR DECEASED’S REPRESENTATIVE
• TRANSFER IN PRESCRIBED FORM
• TRANSFER DEED DULY STAMPED
• COMPLETED BOTH BY TRANSFEROR AND TRANSFEREE
AND SIGNED AND WITNESSED
• PRESENTATION TO COMPANY
• BOARD MEETING
• TRANSFER EFFECTEDON BACK OF SHARE CERTIFICATE
• DEPOSITORY SYSTEM-TRANSFER EFFECTED BY BOOK
ENTRY BY DEPOSITORY WITHOUT ANY TRANSFER DEED
AND WITHOUT PHYSICAL DELIVERY OF SHARES
• TRANSMISSION OF SHARES
– TRANSFER OF OWNERSHIP BY OPERATION OF LAW
– ON DEATH, INSOLVENCY OR LUNACY OF
SHAREHOLDER
– WITHOUT ANY FORMAL INSTRUMENT OF TRANSFER,
SHARES VEST IN LEGAL REPRESENTATIVE, OFFICIAL
RECEIVER/ASSIGNEE OR THE ADMINISTRATOR AS THE
CASE MAY BE
– THE PERSON ENTITLED TO BECOME MEMBER SHALL
MAKE APPLICATION ALONG WITH RELEVANT
CERTIFICATE AND SUCCESSION CERTIFICATE
DIRECTORS
• SEC. 2(13)- ANY PERSON OCCUPYING THE
POSITION OF A DIRECTOR BY WHATEVER
NAME CALLED
• A PERSON WHO HAS CONTROL OVER
DIRECTION, GOVERNANCE, POLICIES OR
SUPERINTENDENCE OF AFFAIRS OF A
COMPANY
• SEC. 253 ONLY INDIVIDUALS CAN BE
APPOINTED AS DIRECTORS
DIRECTORS
• NUMBER OF DIRECTORS
– PUBLIC COMPANY MIN.3
– PRIVATE COMPANY MIN 2
– NO LIMIT ON MAX.
– NUMBERS PROVIDED IN ARTICLES
DIRECTORS
• HOW MANY DIRECTORSHIPS ONE CAN TAKE
– NOT MORE THAN 15 AT A TIME EXCLUDING
DIRECTORSHIP IN
• PRIVATE COMPANY
• UNLIMITED COMPANY
• SECTION 25 COMPANY
• ALTERNATE DIRECTOR
IF ONE IS HAVING 15 DIRECTORSHIP AND APPOINTED
DIRECTOR FURTHER IT IS VOID UNLESS HE VACATES
ANOTHER OFFICE IN 15 DAYS SEC 277
PENALTY RS.50000 FOR BREACH
DIRECTORS
• APPOINTMENT
– ARTICLES –FIRST DIRECTORS
– SUBSEQUENT DIRECTORS BY GENERAL MEETING
– PUBLIC CO. -2/3RD DIRECTORS BY ROTATION AND MAX. 1/3RD PERMANENT
UNLESS ARTICLES OTHERWISE PROVIDE
– OF 2/3RD, 1/3RD SHALL RETIRE AT EVERY AGM IN ORDER OF SENIORITY OF
APPOINTMENT
– DIRECTOR OTHER THAN RETIRING, NEW APPOINTMENT NOTICE 14 DAYS
BEFORE MEETING WITH SECURITY 5000 RS. .COMPANY WILL INFORM
MEMBERS 7 DAYS BEFORE MEETING. SECURITY DEPOSIT REFUNDED IF
CANDIDATE WINS
– CASUAL VACANCY SHALL BE FILLED UP BY BOARD FOR REMAINING TENURE OF
OUTGOING DIRECTOR
– ADDITIONAL DIRECTOR BY BOARD UPTO NEXT GENERAL MEETING BUT TOTAL
DIRECTORS NOT TO EXCEED LIMIT OF ARTICLES
– NOMINATED DIRECTORS
– APPOINTED BY CENTRAL GOVERNMENT
DIRECTORS
• AUDIT COMMITTEES SEC 292A
– EVERY PUBLIC COMPANY WITH PAID UP CAPITAL OF
RS 5 CR OR MORE SHALL SET UP COMMITTEE OF
BOARD AS AUDIT COMMITTEE
– AT LEAST 3 DIRECTORS
– 2/3RD DIRECTORS OTHER THAN MD OR WTD
– COMPOSITION OF COMMITTEE DISCLOSED IN
ANNUAL REPORT
– TO DISCUSS WITH STATUTORY AUDITORS THE
INTERNAL CONTROL SYSTEMS AND COMPLIANCE
THEREWITH, REVIEW HALF YEARLY AND YEARLY
ANNUAL FINANCIAL STATEMENTS
DIRECTORS
• REMOVAL OF DIRECTORS
– BY SHAREHOLDERS BY GIVING 14 DAYS NOTICE
BEFORE THE MEETING BY PASSING ORDINARY
RESOLUTION
– BY CENTRAL GOVERNMENT
– BY TRIBUNAL ON APPLICATION MADE U/S 397-98
FOR OPPRESSION AND MISMANAGEMENT
DIRECTORS
• DISQUALIFICATION OF DIRECTORS
– PERSON OF UNSOUND MIND
– AN UNDISCHARGED UNSOLVENT
– WHO HAS APPLIED TO BE ADJUDGED INSOLVENT
– PERSON CONVICTED BY COURT OF AN OFFENCE INVOLVING MORAL
TRUPTITUDE AND IMPRISONED FOR 6 MONTHS OR MORE AND HAS
NOT COMPLETED 5 YEARS FROM COMPLETION OF SENTENCE
– FAILED TO PAY CALLS FOR 6 MONTHS FROM DUE DATE
– DISQIALIFIED BY TRIBUNAL
– IS DIRECTOR OF PUBLIC COMPANY WHICH HAS NOT FILED ANNUAL
ACCOUNTS AND ANNUAL RETURNS FOR CONTINUOUS 3 YEARS OR
FAILED TO REPAY DEPOSIT, PAY INTEREST THEREON, REDEEM ITS
DEBENTURE ON DUE DATE OR PAY DIVIDEND AND SUCH FAILURE
CONTINUES FOR 1 YEAR OR MORE
DIRECTORS
• POWERS
– CO EXIST WITH COMPANY POWERS EXCLUDING POWERS TO BE EXCERCISED
BY GENERAL BODY
– MAKE CALLS
– ISSUE DEBENTURES
– BORROW MONEY
– INVEST COMPANIES FUNDS
– MAKE LOANS
– BUY BACK SHARES U/S 77A(2)(b)
– FILLING CASUAL VACANCY OF BOARD
– APPOINT ADDITIONAL DIRECTOR
– SANCTION CONTRACT IN WHICH A DIRECTOR IS INTERESTED
– RECOMMENDING RATE OF DIVIDEND
– APPOINT FIRST AUDITOR
– FILLING UP CASUAL VACANCY OF AUDITOR EXCEPT RESIGNATION
– MAKE POLITICAL CONTRIBUTION
DIRECTORS
• MATTERS REQUIRING UNANIMOUS CONSENT
OF BOARD MEMBERS PRESENT
– APPROVAL OF PROSPECTUS
– APPOINT MD WHO IS ALREADY MD OF ANOTHER
COMPANY
– SANCTIONING MAKING INVESTMENT IN SHARES
OF OTHER BODIES CORPORATE
DIRECTORS
• RESTRICTIONS ON POWERS-TO BE EXCERCISED WITH
APPROVAL OF GENERAL MEETING IN A PUBLIC COMPANY
– SELL, LEASE OR OTHERWISE DISPOSE OFF WHOLE OR
SUBSTANTIALLY WHOLE UNDERTAKING
– EXTEND TIME FOR REPAYMENT OF LOAN DUE TO COMPANY
FROM ITS DIRECTOR
– TO INVEST AMOUNT OF COMPENSATION ON COMPULSORY
ACQUISITION OTHER THAN TRUST SECURITIES
– TO BORROW MONEY IN EXCESS OF PAID UP CAPITAL AND FREE
RESERVES
– TO MAKE CONTRIBUTION TO CHARITABLE OR OTHER TRUST NOT
DIRECTLY RELATED TO BUSINESS OF THE COMPANY OR WELFARE
OF ITS EMPLOYEES EXCEEDING RS. 50000 IN A FINANCIAL YEAR
OR 5% AVERAGE NET PROFIT OF LAST 3 YEARS WHICHEVER
HIGHER
DIRECTORS
• MEETINGS OF BOARD
– MINIMUM 4 IN A YEAR
– NOTICE IN WRITING TO EVERY DIRECTOR ON HIS USUAL
INDIAN ADDRESS WHICH SHOULD SPECIFY DATE, PLACE
AND TIME OF MEETING
– AGENDA-BUSINESS TO BE TRANSACTED IN MEETING TO BE
MENTIONED IN NOTICE
– QUORUM
• 1/3RD OF TOTAL STRENGTH OF BOARD-ANY FRACTION TO BE
COUNTED AS 1
• OR 2 DIRECTORS WHICHEVER HIGHER
• ARTICLES MAY PROVIDE FOR HIGHER QUORUM
• IF NO QUORUM MEETING TO BE ADJOURNED SAME DAY AND
TIME NEXT WEEK, IF PUBLIC HOLIDAY THEN NEXT DAY
DIRECTORS
• MEETINGS OF BOARD
– RESOLUTION BY CIRCULATION
– BUSINESS TRANSACTED BY RESOLUTION
THROUGH SIMPLE MAJORITY
DIRECTORS
• DIRECTORS’ RESPONSIBILITY STATEMENT
– SEC 217(AA)-TO BE ATTACHED TO DIRECTORS’
REPORT- SHALL INDICATE THAT
• APPLICABLE ACCOUNTING STANDARDS FOLLOWED
• ACCOUNTING POLICIES SELECTED AND APPLIED
CONSISTENTLY FOR TRUE AND FAIR VIEW OF PROFIT
AND FINANCIAL POSITION
• SUFFICIENT CARE TAKEN TO MAINTAIN ADEQUATE
ACCOUNTING RECORDS TO PREVENT FRAUD AND
OTHER IRREGULARITIES
• ACCOUNTS PREPARED ON GOING CONCERN BASIS
DIRECTORS
• DUTIES OF DIRECTORS
– ACT IN GOOD FAITH
– REASONABLE CARE IN DISCHARGE OF DUTIES
– TO ATTEND BOARD MEETING
– DUTY NOT TO DELEGATE
– DUTY TO DISCLOSE INTEREST
– STATUTORY DUTIES
• CALL EXTRA ORDINARY GENERAL MEETING
• LAY ANNUAL REPORT BEFORE THE GENERAL BODY MEETING
• CONVENE GENERAL MEETINGS
• APPOINT FIRST AUDITORS
• TAKE QUALIFICATION SHARES IF REQUIRED
• TO AUTHENTICATE AND APPROVE FINANCIAL STATEMENTS
• FILE RETURN OF ALLOTMENT
DIRECTORS
• MANAGERIAL REMUNERATION
– REFERS TO REMUNERATION PAYABLE TO MD/WTD/MANAGER
(MEMBER OF BOARD)
– PROVISION IN ARTICLES MUST
– MONTHLY PAYMENTS/ SPECIFIED %AGE OF PROFITS/ SITTING
FEE
– SEC 198-OVERALL CEILING 11% IN CASE OF PUBLIC COMPANY
EXCLUSIVE OF SITTING FEE
– CEILING ON SITTING FEE RS. 20000/= PER MEETING PER
DIRECTOR FOR BOARD/ COMMITTEE MEETING
– NOT TO EXCEED 5% OF PROFITS FOR ONE SUCH DIRECTOR , IF
THERE ARE MORE THAN 1 THEN 10%
– OTHER DIRECTORS TO BE PAID-CEILING 1% IF THERE IS A MD OR
WTD AND 3% OF NET PROFITS IF THERE IS NONE MD/WTD
DIRECTORS
• MANAGING DIRECTOR
– SEC. 269-EVERY PUBLIC COMPANY OR PRIVATE COMPANY
WHICH IS SUBSIDIARY OF PUBLIC COMPANY HAVING PAID UP
CAPITAL OF RS. 5 CR OR MORE MUST HAVE MD/WTD
– SEC. 2(26)-MD DEFINED AS DIRECTOR WHO BY AGREEMENT OR
RESOLUTION OF COMPANY OR PROVISION IN MEMORANDUM
OR ARTICLES IS ENTRUSTED WITH SUBSTANTIAL POWERS OF
MANAGEMENT WHICH OTHERWISE WOULD NOT BE
EXCERCISABLE BY HIM
– ACTS UNDER DIRECT SUPERVISION AND CONTROL OF BOARD OF
DIRECTORS
– MAX. PERIOD 5 YEARS AT A TIME
– CAN NOT ACT AS MD IN MORE THAN 2 COMPANIES AT A TIME
– WIDE DISCRETIONARY POWERS
DIRECTORS
• WHOLE TIME DIRECTOR
– SEC.269(1)-A DIRECTOR IN WHOLE TIME
EMPLOYMENT OF THE COMPANY
– ONLY BY SPECIAL RESOLUTION OF GENERAL
MEEETING
– NO RESTRICTION ON TERM
– CAN NOT BE WTD IN MORE THANONE COMPANY
– EXCERCISES POWERS IN TERMS OF CONTRACT
– NO DISCRETIONARY POWERS
DIRECTORS
• COMPANY SECRETARY
– MEMBER OF ICSI
– ONLY INDIVIDUAL
– PERFORMS MINISTERIAL OR ADMINISTRATIVE
POWERS
– NOT ENTRUSTED WITH POWERS OF
MANAGEMENT AND CONTRAL NORMALLY
– APPOINTMENT COMPULSORY BY A COMPANY
HAVING PAID UP CAPITAL OF RS. 10 CRORES OR
MORE
DIVIDENDS AND INTERESTS
• PART OF CORPORATE PROFITS DISTRIBUTED AMONGST
SHAREHOLDERS
• DIVIDEND SHALL INCLUDE INTERIM DIVIDEND
• FIXED FOR PREFERENCE SHARES AND VARIABLE FOR EQUITY
SHARES
• PROFITS AND DIVISIBLE PROFITS
• Declaration at general meeting
• Out of current year profits, out of accumulated profits and out of
payments given by Central/ State Govt. towards guarantee
• NEVER PAID OUT OF CAPITAL
• DIVISIBLE PROFITS AFTER CHARGING CURRENT YEAR AND
PREVIOUS YEARS UNABSORBED DEPRECIATION AS WELL AS PAST
YEARS LOSSES
• COMPULSORY TRANSFER TO RESERVE
– 10-12.5% DIV. 2.5%
– 12.5%-15% 5%
– 15-20% 7.5%
– >20% 10% MINIMUM
– NO TRANSFER TO RESERVES IF DIVIDEND <10%
• IN PROPORTION TO AMOUNT PAID UP ON EACH SHARE IF
ARTICLES SO PROVIDE OTHERWISE IN PROPORTION TO
NOMINAL VALUE OF SHARES
• CAN’T PAY ANY DIVIDEND UNLESS ALL IRREDEMABLE PREF
SHARES ARE PAID
• CASH PAYMENT OR CREDIT TO BANK ACCOUNT IF
MANDATE GIVEN
• TO REGISTERED HOLDER
• INTERIM DIVIDEND
• IN 42 DAYS FROM DECLARATION
• TRANSFER TO INVESTOR EDUCATION AND PROTECTION
FUND AFTER 7 YEARS
ACCOUNTS AND AUDIT
*ANNUAL ACCOUNTS AND BALANCE SHEET SEC 210
BOARD OF DIRECTORS SHALL LAY
BALANCE SHEET
PROFIT AND LOSS ACCOUNT, AND
DIRECTORS’ REPORT
BEFORE AGM
PERIOD NORMAL 12 MONTHS
NOT TO EXCEED 15 MONTHS
WITH SPECIAL PERMISSION OF ROC 18 MONTHS
FILING OF ACCOUNTS WITH ROC
ACCOUNTS AND AUDIT
• AUDIT
– COMPULSORY
– THEY REPORT TO SHAREHOLDERS
– 1ST AUDITORS APPOINTED BY BOARD IN 1 MONTH OF
INCORPORATION
– IF BOARD FAILS THEN GENERAL MEETING MAY
APPOINT 1ST AUDITORS
– SUBSEQUENT AUDITORS BY GENERAL MEETING BY
ORDINARY RESOLUTION
– REMUNERAION-IF APPOINTED BY BOARD THEN BY
BOARD, OTHERWISE IN GENERAL MEETING OR AS THE
GENERAL BODY DETERMINE
ACCOUNTS AND AUDIT
• SPECIAL AUDIT SEC 233A
– ORDER BY CENTRAL GOVERNMENT AS UNDER
• AFFAIRS NOT MANAGED IN ACCORDANCE WITH
SOUND BUSINESS PRINCIPLES OR PRUDENT
COMMERCIAL PRACTICES
• COMPANY SO MANAGED LIKELY TO CAUSE INJURY OR
DAMAGE TO INTEREST OF TRADE, INDUSTRY OR
BUSINESS TO WHICH IT PERTAINS
• FINANCIAL POSITION SUCH TO ENDANGER SOLVENCY
ACCOUNTS AND AUDIT
• COST AUDIT
– CENTRAL GOVERNMENT MAY REQUIRE FOR
PARTICULAR INDUSTRIES
– ENGAGED IN PRODUCTION, PROCESSING AMD
MANUFACTURING OR MINING
– TO EXAMINE UTILIZATION OF MATERIAL, LABOUR AND
OTHER ITEMS OF COST
– AUDIT CONDUCTED BY QUALIFIED COST ACCOUNTANT
OR A CHARTERED ACCOUNTANT IF SUFFICIENT
NUMBER OF COST ACCOUNTANTS NOT AVAILABLE
BORROWING POWERS
• BORROWINGS BY DIRECTORS NOT TO EXCEED
PAIDUP SHARE CAPITAL AND FREE RESERVES
• BEYOND THIS MEMBERS AUTHORISED
• FIXED AND FLOATING CHARGE MAY BE CREATED
• FIXED CHARGE IS ON SPECIFIC PROPERTY
• FLOATING CHARGE IS ON ALL PRESENT AND
FUTURE ASSETS OF COMPANY
• CHARGE REQUIRE REGISTRATION WITH ROC
• READ DEBENTURES AND PUBLIC DEPOSIT FROM
BOOK
COMPROMISE, ARRANGEMENTS,
RECONSTRUCTIONS AND AMALGAMATIONS
• APPLICABLE TO COMPANIES WHICH ARE
GOING CONCERN
• TO SAVE THEM FROM LIQUIDATION
• COMPROMISE
ARRANGEMENTS
• RECONSTRUCTIONS
• AMALGAMATIONS
RECONSTRUCTIONS AND
AMALGAMATIONS
• COMPROMISE
– PRE EXIST DISPUTE BETWEEN COMPANY AND
MEMBERS/ CREDITORS
– SETTLEMENT OF DISPUTE WITH MUTUAL
CONSENT
– SOME DEGREE OF GIVE AND TAKE
RECONSTRUCTIONS AND
AMALGAMATIONS
• ARRANGEMENT
– READJUSTMENT OF RIGHTS AND LIABILITIES OF A
MEMBER OR A CREDITOR OR A CLASS OF THEM
– INVOLVES OF REORGANIZATION OF SHARE
CAPITAL BY CONSOLIDATION OF DIFFERENT
CLASSES OF SHARES OR BY SUB DIVISION OF
SHARES INTO SHARES OF DIFFERENT CLASSES OR
BOTH
RECONSTRUCTIONS AND
AMALGAMATIONS
• PROCEDURE OF COMPROMISE/ ARRANGEMENT
– APPLICATION TO TRIBUNAL BY COMPANY/
LIQUIDATOR OR AFFECTED MEMBER/ CREDITOR
– TRIBUNAL TO INFORM CENTRAL GOVERNMENT
– MEETING OF MEMBERS/ CREDITORS CALLED
– NOTICE TO ALL INTERESTED PARTIES THROUGH
ADVERTISEMENT
– 3/4TH MAJORITY SHOULD APPROVE
– APPROVAL BY TRIBUNAL
– TRIBUNAL ORDER FILED WITH ROC
– TRIBUNAL MAY ORDER EVEN FOR WINDING UP
RECONSTRUCTIONS AND
AMALGAMATIONS
• RECONSTRUCTION
– FORMATION OF NEW COMPANY TO TAKE OVER
ASSETS OF EXISTING COMPANY
– OLD COMPANY WOUND UP
– DONE TO REORGANIZE –ALTER/ MODIFY RIGHTS
OF SHAREHOLDERS OR CREDITORS OR BOTH
RECONSTRUCTIONS AND
AMALGAMATIONS
• AMALGAMATION
– 2 MORE COMPANIES JOIN TOGETHER OR ONE
TAKES OVER OTHERS
– SHAREHOLDERS OF TRANSFEROR COMPANY
BECOMES SHAREHOLDERS OF TRANSFEREE
COMPANY
– DONE TO AVAIL MORE SYNERGIES
RECONSTRUCTIONS AND
•
AMALGAMATIONS
AMALGAMATION
– SCHEME OF AMALGAMATION PREPARED
• APPROVED BY 3/4TH VALUE OF SHARES
• SANCTION BY TRIBUNAL WHICH CAN MAKE PROVISIONS FOR
– TRANSFER OF ASSETS AND LIABILITIES
– ALLOTMENT OF SHARES ETC BY TRANSFEREE COMPANY
– CONTINUATION OF ANY LEGAL PROCEEDINGS
– DISSOLUTION WITHOUT WINDING UP
– PROVISION FOR DISSENTING PERSONS
– OTHER MATTERS
– REPORT FROM ROC THAT AFFAIRS OF COMPANY NOT CARRIED
DETRIMENTAL TO SHAREHOLDERS OR OTHER STAKEHOLDERS
– TRIBUNAL ORDER FILED WITH ROC
– TRIBUNAL TO INFORM CENTRAL GOVERNMENT OF EACH CASE AND TAKE
INTO CONSIDERATION OF DIRECTIVES OF CENTRAL GOVERNMENT
RECONSTRUCTIONS AND
•
AMALGAMATIONS
AMALGAMATION IN NATIONAL INTEREST
– CENTRAL GOVERNMENT MAY ORDER IN PUBLIC INTEREST
– WITH SUCH CONSTITUTION, PROPERTY, RIGHTS, INTERESTS,
AUTHORITIES, PRIVILEGES AND LIABILITIES AS MAY BE
SPECIFIED IN ORDER
– DRAFT ORDER OF CENTRAL GOVERNMENT SENT TO BOTH
COMPANIES TO REPLY ANY OBJECTIONS IN 2 MONTHS
– MODIFICATION IN DRAFT ORDER IN VIEW OF ANY
SUGGESTIONS RECEIVED FROM COMPANIES
– EACH STAKEHOLDER SHALL HAVE SAME RIGHTS AS BEFORE. IF
REDUCTION IN RIGHTS , COMPENSATION SHALL BE PAID
– COPY OF ORDER PASSED PLACED BY GOVERNMENT BEFORE
BOTH HOUSES OF PARLIAMENT AS SOON AS POSSIBLE
WINDING UP
• BY STRIKING OFF NAME OF DEFUNCT
COMPANY
• BY WINDING UP
• BY COMPROMISE/ ARRANGEMENT FOR
RECONSTRUCTION OR AMALGAMATION
WITHOUT WINDING UP
WINDING UP
• DEFUNCT COMPANY
– ROC SENDS LETTER OF ENQUIRY
– NO REPLY IN 1 MONTH
– ANOTHER NOTICE BY ROC IN 14 DAYS
– NO REPLY IN 1 MONTH
– REGISTRAR MAY INFORM COMPANY AND
PUBLISH IN OFFICIAL GAZETTE THAT ON EXPIRY
OF 3 MONTHS ITS NAME SHALL BE STRUCK OFF
WINDING UP
• WNNDING UP
– PROCESS TO END KIFE OF COMPANY
– PROPERTY ADMINISTERED BY LIQUIDATOR
– LIQUIDATOR TAKES CONTROL OF COMPANY,
COLLECTS ASSETS, PAY DEBTS AND FINALLY
DISTRIBUTES SURPLUS AMONGST MEMBERS IN
ACCORDANCE WITH THEIR RIGHTS
– COMPULSORY WINDING UP BY TRIBUNAL U/S 433
OR VOLUNTARY WINDING UP BY MEMBERS/
CREDIRORS
WINDING UP
• WINDING UP BY TRIBUNAL-GROUNDS
– SPECIAL RESOLUTION PASSED BY MEMBERS
– DEFAULTS IN HOLDING STATUTORY MEETING OR IN
DELIVERING STATUTORY REPORT TO REGISTRAR
– FAILURE TO COMMENCE BUSINESS IN 1 YEAR OF
INCORPORATION OR SUSPENDING BUSINESS FOR
WHOLE YEAR
– REDUCTION IN MEMBERSHIP BELOW STATUTORY
MEINIMUM
– INABILITY TO PAY DEBTS
• RS 1 LAC DUE, DEMAND MADE AND WITHIN 3 WEEKS
COMPANY FAILED TO PAY OR SATIFY CREDITOR
WINDING UP
– JUST AND EQUITABLE
• WHERE SUBSTRATUM OF COMPANY GONE
• COMPLETE DEADLOCK IN MANAGEMENT
• OPPRESSION OF MINORITY
• COMPANY WAS FORMED FOR ILLEGAL PURPOSES SUCH AS
RUNNING THE LOTTERIES
• INSOLVENCY INEVITABLE
• WHERE COMPANY WORKING AGAINST
– INTEGRITY OF INDIA
– SECURITY OF STATE
– FRIENDLY RELATION WITH FOREIGN STATE
– PUBLIC ORDER, DECENCY, MORALITY
WINDING UP
– WINDING UP SICK INDUSTRIAL COMPANY
WINDING UP
• CONSEQUENCES OF WINDING UP ORDER
– DISCHARGE OF EMPLOYEES
– CONTINUATION OF SUIT OR LEGAL PROCEEDING
AGAINST COMPANY IF PERMITTED BY TRIBUNAL
– SUBMISSION OF AUDITED BOOKS TO TRIBUNAL
– OFFICIAL LIQUIDATOR TO TAKE CHARGE OF COMPANY
– DISPOSAL OF PROPERTY OF COMPANY/ SHARES OF
COMPANY/ ALTERATION IN STATUS OF MEMBERS VOID
– FLOATING CHARGE WITHIN 12 MONTHS IMMEDIATELY
BEFORE WINDING UP ORDER VOID
READ LIQUIDATOR RIGHTS AND LIABILITIES FROM BOOK
WINDING UP
• VOLUNTARY WINDING UP-GROUNDS
– BY PASSING ORDINARY RESOLUTION BY MEMBERS
IF PERIOD FIXED FOR DURATION OF COMPANY
EXPIRED OR SOME EVENT ON THE HAPPENING OF
WHICH COMPANY IS TO BE DISSOLVED
– BY PASSING SPECIAL RESOLUTION FOR ANY OTHER
REASON WHATSOEVER
– WITHIN 14 DAYS IT IS TO BE ADVERTISED IN
NEWSPAPER CIRCULATING IN THE DISTRICT WHERE
REGISTERED OFFICE IS SITUATED
WINDING UP
• MEMBERS VOLUNTARY WINDING UP

– DECLARATION OF SOLVENCY
– RESOLUTION-ORDINARY/ SPECIAL
WINDING UP
• CREDITORS’ VOLUNTARY WINDING UP
– WHEN COMPANY INSOLVENT
– HERE CREDITORS TAKE PROMINANCE IN WINDING
UP PROCEEDINGS
DIFFERENCE BETWEEN MEMBERS AND CREDITORS’
VOLUNTARY WINDING UP-READ FROM BOOK

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