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Company law Notes

Shrishty Kumari
B.com hons 2nd yr

1. Diffrence between transfer of share and transmission of share ?

Key Differences Between Transfer and Transmission of Shares
The significant differences between transfer and transmission of shares are provided below:
1 When the shares are transferred by one party to another party, voluntarily, it is known as
transfer of shares. When the transfer of shares happens due to the operation of law, it is
referred to as transmission of shares.
2 Transfer of shares is done intentionally whereas death, bankruptcy and lunacy are the
reasons for transmission of shares.
3 The transfer of shares is initiated by the parties to transfer, i.e. transferor and transferee.
Unlike transmission of shares which is initiated by the legal representative of the concerned
4 Transferee pays an adequate consideration to the transferor for the transfer of shares. In the
case of transmission of shares, no consideration shall be paid.
5 Execution of valid transfer deed is necessary when there is the transfer of shares, but not in
the transmission of shares.
6 When the transfer is completed, the liability of the transferor is over. On the other hand, the
original liability of shares exists.
7 Stamp duty is payable on the market value of shares in case of transfer while in the
transmission of shares no stamp duty is to be paid.
2. Difference between share and stock
Key Differences Between Share and Stock

The following are the major differences between share and stock

1 A share is that smallest part of the share capital of the company which highlights the
ownership of the shareholder. On the other hand, the bundle of shares of a member in a company,
are collectively known as stock.

2 Section 2 (46) defines the term share. Section 94 authorises a limited company to convert
its fully paid up shares into stock.

3 The share is always originally issued while the original issue of Stock is not possible.

4 A share has a definite number known as a distinctive number which distinguishes it from
other shares, but a stock does not have such number.

5 Shares can be partly paid or fully paid. Conversely, Stock is always fully paid.

6 Shares can never be transferred in the fraction. As opposed to stock, can be transferred in the
7 Shares have nominal value, but the stock does not have any nominal value.

3. Difference between share certificate and warrant ?

Key Differences Between Share Certificate and Share Warrant

The following are the major differences between Share Certificate and Share Warrant

1 A share certificate is the documentary evidence which proves the possession of the shares. A
share warrant is the document of title which states that the holder of the instrument is entitled to the

2 The issue of share certificate is compulsory for every company limited by shares but the
issue of a share warrant is not compulsory for every company.

3 A Share Certificate is issued against the shares, regardless of the fact that the shares are fully
paid up or partly paid up. Conversely, Share Warrant is issued by the public company only against
fully paid up shares.

4 Share Certificate can be issued by both public and private companies, whereas Share
Warrant is issued only by the public limited company.

5 Share Certificate is to be issued within 3 months of the allotment of shares, but there is no
such time limit specified in the Companies Act for the issue of Share Warrant.

6 A share certificate is not a negotiable instrument. As opposed to share warrant, is a

negotiable instrument.

7 For the issue of a share warrant, prior approval of Central Government is a must. On the
other hand, Share Certificate does not require such type of approval.

8 A share certificate can be originally issued, but a share warrant cannot be issued originally.

4. What is sweat share ?

Sweat equity shares are such equity shares, which are issued by a Company to its directors or
employees at a discount or for consideration, other than cash, for providing their know-how or
making available rights in the nature of intellectual property rights or value additions, by whatever
name called
ISweat Equity Shares for a private limited company used to be regulated by Section 79A and
Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 under Companies Act, 1956 which
under the Companies Act, 2013.
Sweat equity shares refers to equity shares given to the companys employees on favourable terms,
in recognition of their work. It is one of the modes of making share based payments to employees of
the company. The issue of sweat equity allows the company to retain the employees by rewarding
them for their services. Sweat equity rewards the beneficiaries by giving them incentives in lieu of
their contribution towards the development of the company. Further, it enables greater employee
stake and interest in the growth of an organization as it encourages the employees to contribute
more towards the company in which they feel they have a stake.

5. Right of share ?
Right shares are those shares which are issued to existing shareholders. According to section 81 of
Indian company act 1956, Company can issue right shares only after the two years of creation of
company or one year of first issue of shares which ever is earlier."

Steps for issuing right shares

1st Step: Right shares must be in ratio of equity shares of existing shareholders.

2nd Step: Right Issue by 15 days notice

Right shares will be issued with 15 days notice. This notice will be offer. Existing shareholders can
either accept or reject this offer.

3rd Step: Right shares issue must not be opened more than 60 days under SEBI guidelines.
Provision of 81 will not apply on private company. This rule will not also apply on conversion of
debentures into shares.

Benefits of Issuing Right Shares

1. More control on existing shareholders

Because right shares are issued to existing shareholder, so there is no risk of losing of control of
existing shareholders. Existing shareholders share will increase in company and they can take
decision without any compromise with the principles of company. It is very helpful to achieve the
missions of company.

2. No loss to existing shareholder

By issuing shares to existing shareholders, value of share will increase due to stability in controlling
power of company. So, there will not be any loss to existing shareholders with right shares.

3. No cost for issuing shares to public

Company has not to give any invitation to public, so advertising cost and other new issue cost will
decrease with right shares.

4. Helpful to increase the goodwill of company

It is also way to increase the goodwill and reputation of company in industry.

5. Capital formation
Company can get capital at any time without any delay because company can easily issue of shares
to existing shareholders just sending right shares offer notice.

6. More scientific

Distribution technique of right shares issue is more scientific. Not all shares will get by single
shareholders but it will be in the proportion of existing shares which is in the hand of old
shareholders at this time.

For Example

A company is planning to raise funds by making rights issue of equity shares to finance its
expansion. The existing equity share capital of the company is Rs. 50, 00,000. The market value of
its share is Rs. 42. The company offers to its share the right to buy 2 shares at Rs. 11 each for every
5 share held. You are required to calculate:

1. Theoretical market price after right issue

2. The value of right

3. % increase in share capital


Market value of 5 shares already held by a shareholder @ Rs. 42 = 210

Add the price to be paid by him for acquiring 2 more shares@ Rs. 11 per share = 22

Total Rs. 232

1. Theoretical market price of one share = 232/7 = Rs. 33.14

2. Value of Right = Market price theoretical market price = 42- 33.14 = 33.86

3. % increase in share capital

Present capital = 50, 00,000

Right issue Rs. 50, 00,000 X 2/5 = 20, 00,000

% increase in share capital = 20, 00,000 / 50, 00,000 X 100 = 40%

6. What is bonus share

Definition: Bonus shares are additional shares given to the current shareholders without any
additional cost, based upon the number of shares that a shareholder owns. These are company's
accumulated earnings which are not given out in the form of dividends, but are converted into free
Description: The basic principle behind bonus shares is that the total number of shares increases
with a constant ratio of number of shares held to the number of shares outstanding. For instance, if
Investor A holds 200 shares of a company and a company declares 4:1 bonus, that is for every one
share, he gets 4 shares for free. That is total 800 shares for free and his total holding will increase to

Companies issue bonus shares to encourage retail participation and increase their equity base. When
price per share of a company is high, it becomes difficult for new investors to buy shares of that
particular company. Increase in the number of shares reduces the price per share. But the overall
capital remains the same even if bonus shares are declared.

7. Final dividend
A final dividend refers to the dividend declared by a company's board of directors after the
company has issued its full-year financial statements for its fiscal year. The final dividend is
typically larger than any interim dividends that may have been issued during the fiscal year; this is
because the board of directors is not sure of the entire amount of cash that is available for
distribution to shareholders until the final results are available for the full year, and so it tends to be
conservative in the size of any interim dividends that are issued.

8. Interim dividend
An interim dividend is a distribution to shareholders that has been both declared and paid before a
company has determined its full-year earnings. Such dividends are frequently distributed to the
holders of a company's common stock on either a quarterly or semi-annual basis.
The board of directors may set an interim dividend at a lower amount than the dividend that it issues
following the release of the company's annual financial results, so that the interim dividend does not
impair the ability of the company to operate if the annual results turn out to be lower than initially

9. Zero coupon bond /Debenture ?

A zero-coupon bond is a bond that makes no periodic interest payments and is sold at a deep
discount from face value. The buyer of the bond receives a return by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date.
Zero-coupon bonds are usually long-term investments; they often mature in ten or more years.
Although the lack of current income provided by zero-coupons bond discourages some investors,
others find the securities ideal for meeting long-range financial goals like college tuition. The deep
discount helps the investor grow a small amount of money into a sizeable sum over several years.

Because zero-coupon bonds essentially lock the investor into a guaranteed reinvestment rate,
purchasing zero-coupon bonds can be most advantageous when interest rates are high. They are also
more advantageous when placed in retirement accounts where they remain tax-sheltered. Some
investors also avoid paying taxes on imputed interest by buying municipal zero-coupon bonds,
which are usually tax-exempt if the investor lives in the state where the bond was issued.
The lack of coupon payments on zero-coupon bonds means their worth is based solely on their
current price compared to their face value. Thus, prices tend to rise faster than the prices of
traditional bonds when interest rates are falling, and vice versa. The locked-in reinvestment rate also
makes them more attractive when interest rates fall.

10. Corporate veil

The term "corporate veil" refers to the concept that a publicly traded company's shareholders are
shielded from liability connected to that company's actions. If the company incurs corporate debts
or breaks laws, the corporate veil concept dictates that shareholders should not be held liable for
those errors.Rather than being a literal shield, the corporate veil is a concept that nonetheless exists
to ensure the safety of a company's shareholders in the event of that company's financial or legal
misconduct. Though the corporate veil is typically respected, there are some cases in which the
concept is disregarded. This is known as "piercing the corporate veil," and in these cases, judges
may choose to hold shareholders liable for a company's actions. According to Cornell University's
Legal Information Institute, specific rules regarding piercing the corporate veil may vary from state
to state, but judges are typically reluctant to engage in this practice.

11. Charted company.

An Incorporated Company founded by the royal Charter granted by the Crown is called a Chartered
Company. The best example of a chartered company is the East India Company.
The members of a chartered company have no liability for the debts contracted by the company.

12. Government company.

Government company is a company which either registered as a Private Company or as a Public
company with the Registrar of Companies under the Companies Act, 1956, & the Government has
taken over or purchased 51% or more capital of the company. The remaining capital may be taken
over by the public.

Bharat Heavy Electricals Limited, Steel Authority of India Limited, etc are some examples of
Government Company.

According to Section 617 of the Indian Companies Act, 1956, a Government company means, "any
company in which not less than fifty one percent of the share capital is held by the Central
Government or any State Government or partly by the Central Government and partly by one or
more State Governments".

Features of Government Companies:

(1) Formation: Government company is formed & registered under Indian Companies Act, 1956,
either as a Private company or Public company.

(2) Ownership: It may be partly or wholly owned by Government. State Government or Central
Government or both may own the Government Company. If it is partly owned by Government then
at least 51% of the capital must be taken over by the government.
(3) Management: Management of Government company is vested in the hands of Board of
Directors. The Directors may be nominated by government or even the shareholders can appoint the
Board of Directors.

(4) Separate Legal Status: A Government company, like a joint stock company is an incorporated
association & artificial person having a common seal & perpetual succession. It has a separate legal
entity from its owners.

(5) Body Corporate: A Government company is incorporated under the Indian Companies Act,
1956. It enjoys the status of body corporate. "It can enter into contract in its own name & can
acquire properties in its own name. It can sue & can sued by others

(6) Employees: The employees & other staff members in government company are appointed by the
company itself. The employees are neither government servants nor they work under civil servants;
the government may in exceptional cases nominate some top executives.

(7) Capital Collection: A government company requires huge capital for its business operations. The
company is free to collect capital through its own sources & it can even borrow the money
depending upon its requirements.

(8) Approval of Accounts: Government company has to place its Annual Accounts & Annual
Reports for the approval of Legislature Assembly or Parliament as it is compulsory as per the act.

(9) Flexibility: A government company enjoys full flexibility in its operations. It is free to adopt
different changing policies according to changing business environment.

(10) Exemptions: A government company is exempted from Budgetary Accounting & Audit. But,
its Auditors are appointed by the government as per the guidance of controller & Auditor General of

13. Corporation .

Firm that meets certain legal requirements to be recognized as having a legal existence, as an entity
separate and distinct from its owners. Corporations are owned by their stockholders (shareholders)
who share in profits and losses generated through the firm's operations, and have three distinct
(1) Legal existence: a firm can (like a person) buy, sell, own, enter into a contract, and sue other
persons and firms, and be sued by them. It can do good and be rewarded, and can commit
offence and be punished.
(2) (2) Limited liability: a firm and its owners are limited in their liability to the creditors and other
obligors only up to the resources of the firm, unless the owners give personal-guaranties.
(3) Continuity of existence: a firm can live beyond the life spans and capacity of its owners, because
its ownership can be transferred through a sale or gift of shares.

14. Holding and subsidiary company .

Holding Company:
A holding company is a parent company that owns enough voting stock(more than 50%) in a
subsidiary to make management decisions , influence and contorl the company's board of directors.
However, holding companies that control 80% or more of the subsidiary's voting stock gain the
benefits of tax consolidation, which include tax-free dividends for the parent company and the
ability to share operating losses.

Subsidiary Company :
A subsidiary is a company that is controlled by a holding company or parent; this means at least
50% of its stock is controlled by another company. This 50% or greater stake gives the parent
company control.

Legal Definitions As per as per Companies Act, 1956 :

Indian Company :

Section 2(26)- Indian company means a company formed and registered under the Companies
Act, 1956 (1 of 1956), and includes-

(i)a company formed and registered under any law relating to companies formerly in force in any
part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-
clause (iii) of this clause);

(ia)a corporation established by or under a Central, State or Provincial Act;

(ib)any institution, association or body which is declared by the Board to be a company under
clause (17) *** ;

(ii)in the case of the State of Jammu and Kashmir, a company formed and registered under any law
for the time being in force in that State;

(iii)in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and
Pondicherry, a company formed and registered under any law for the time being in force in that
Union territory.
Provided that the registered or, as the case may be, principal office of the company, corporation,
institution, association or body in all cases is in India;

*** Section 2(17) company means-

(i)any Indian company, or

(ii)any body corporate incorporated by or under the law of a country outside India, or

(iii)any institution, association or body which is or was assessable or was assessed as a company for
any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was
assessable or was assessed under this Act as a company for any assessment year commencing on or
before the 1st day of April, 1970, or
(iv)any institution, association or body, whether incorporated or not and whether Indian or non-
Indian, which is declared by general or special order of the Board to be a company:

15. Red herring

A red herring is a preliminary prospectus filed by a company with the Securities and Exchange
Commission (SEC), usually in connection with the company's initial public offering. A red herring
prospectus contains most of the information pertaining to the company's operations and prospects
but does not include key details of the issue, such as its price and the number of shares offered.

16. Statement lieu prospectus

The Statement in Lieu of Prospectus is a document filed with the Registrar of the Companies
(ROC) when the company has not issued prospectus to the public for inviting them to subscribe for
shares. The statement must contain the signatures of all the directors or their agents authorised in
writing. It is similar to a prospectus but contains brief information.
The Statement in Lieu of Prospectus needs to be filed with the registrar if the company does not
issues prospectus or the company issued prospectus but because minimum subscription has not been
received the company has not proceeded for the allotment of shares.

17. Shelf prospectious.

Shelf registration or shelf offering or shelf prospectus is a type of public offering where certain
issuers are allowed to offer and sell securities to the public without a separate prospectus for each
act of offering. Instead, there is a single prospectus for multiple, undefined future offerings.

according to Sec 60A - Shelf Prospectus

(1) Any public financial institution, public sector bank or scheduled bank whose main object is
financing shall file a shelf prospectus.
(2) A company filing a shelf prospectus with the Registrar shall not be required to file prospectus
afresh at every stage of offer of securities by it within a period of validity of such shelf prospectus.
(3) A company filing a shelf prospectus shall be required to file an information memorandum on all
material facts relating to new charges created, changes in the financial position as have occurred
between the first offer of securities, previous offer of securities and the succeeding offer of
securities within such time as may be prescribed by the Central Government, prior to making of a
second or subsequent offer of securities under the shelf prospectus.
(4) An information memorandum shall be issued to the public along with shelf prospectus filed at
the stage of the first offer of securities and such prospectus shall be valid for a period of one year
from the date of opening of the first issue of securities under that prospectus :
Provided that where an update of information memorandum is filed every time an offer of securities
is made, such memorandum together with the shelf prospectus shall constitute the prospectus
Explanation. - For the purpose of this section, -
(a) "financing" means making loans to or subscribing in the capital of, a private industrial enterprise
engaged in infra-structural financing or, such other company as the Central Government may notify
in this behalf;
(b) "shelf prospectus" means a prospectus issued by any financial institution or bank for one or
more issues of the securities or class of securities specified in that prospectus.

A proxy is someone who attends a general meeting and votes in place of a member of the company.
Every member of a company has a statutory right to appoint a proxy. The statutory provisions are in
sec324 - sec331. They largely re-enact sec372 of the 1985 Act, but there are some significant
changes of detail.

A resolution is the formal means by which decisions are made by a meeting of company members.
There are two types of resolutions: ordinary and special. The Corporations Act 2001 (the
Corporations Act) requires many decisions that affect a company to be made by resolution, some of
which must be by special resolution.

19. Minutes ,

Minutes, also known as protocols or, informally, notes, are the instant written record of a meeting or
hearing. They typically describe the events of the meeting and may include a list of attendees, a
statement of the issues considered by the participants, and related responses or decisions for the
Director register
In company law, the directors register is a list of the directors elected by the shareholders, generally
stored in the company's minute book. By law, companies are required to keep this list up to date to
remove those directors who are deceased or resign, and to add those who have been elected by the
Shareholder register
A shareholder register is a list of active owners of a company's shares, updated on an ongoing basis.
The shareholder register requires that every current shareholder be recorded. The register includes
each person's name, address and number of shares held, but can further detail the holder's
occupation and price paid.

20. Statutory meeting

Every public company that is a limited company and has a share capital shall, within a period of not
less than one month and not more than three months after the date at which it is entitled to
commence business, hold a general meeting of the members of the company to be called the
"statutory meeting.

Under Section 142. Statutory meeting and statutory report.

(1) Every public company that is a limited company and has a share capital shall, within a period of
not less than one month and not more than three months after the date at which it is entitled to
commence business, hold a general meeting of the members of the company to be called the
"statutory meeting".
(2) The directors shall at least seven days before the day on which the meeting is to be held forward
a report to be called the "statutory report" to every member of the company.

(3) The statutory report shall be certified by not less than two directors of the company and shall

(a) the total number of shares allotted distinguishing shares allotted as fully or partly
paid up otherwise than in cash, and stating in the case of shares partly paid up the extent to which
they are so paid up, and in either case the consideration for which they have been allotted;

(b) the total amount of cash received by the company in respect of all the shares
allotted and so distinguished;

(c) an abstract of the receipts of the company and of the payments made thereout up
to a date within seven days of the date of the report exhibiting under distinctive headings the
receipts from shares and debentures and other sources the payments made thereof and particulars
concerning the balance remaining in hand, and an account or estimate of the preliminary expenses;

(d) the names and addresses and descriptions of the directors, trustees for holders of
debentures, if any, auditors, if any, managers, if any, and secretaries of the company; and

(e) the particulars of any contract, the modification of which is to be submitted to the
meeting for its approval together with the particulars of the modification or proposed modification.

(4) The statutory report shall, so far as it relates to the shares allotted and to the cash received in
respect of those shares and to the receipts and payments on capital account, be examined and
reported upon by the auditors, if any.

(5) The directors shall cause a copy of the statutory report and the auditor's report, if any, to be
lodged with the Registrar at least seven days before the date of the statutory meeting.

(6) The directors shall cause a list showing the names and addresses of the members and the number
of shares held by them respectively to be produced at the commencement of the meeting and to
remain open and accessible to any member during the continuance of the meeting.

(7) The members present at the meeting shall be at liberty to discuss any matter relating to the
formation of the company or arising out of the statutory report, whether previous notice has been
given or not, but no resolution of which notice has not been given in accordance with the articles
may be passed.

(8) The meeting may adjourn from time to time and at any adjourned meeting any resolution of
which notice has been given in accordance with the articles either before or subsequently to the
former meeting may be passed and the adjourned meeting shall have the same powers as an original

(9) The meeting may by ordinary resolution appoint a committee of inquiry, and at any adjourned
meeting a special resolution may be passed that the company be wound up if notwithstanding any
other provision of this Act at least seven days notice of intention to propose the resolution has been
given to every member of the company.

(10) In the event of any default in complying with this section every officer of the company who is
in default and every director of the company who fails to take all reasonable steps to secure
compliance with this section shall be guilty of an offence against this Act.

21 whole time director ,

As per the explanation under section 269 of the Companies Act, a whole-time director includes a
director in the whole-time employment of the company. In other words, a director who devotes his
whole time to the affairs of a company is called a whole-time director of the company. A whole-
time director of a company cannot accept the position of a whole-time director in other companies,
though he may accept office of non-whole-time director in other companies subject to the limits
imposed by section 275 read with sections 277 and 278.
official receiver
The Official Receiver is a civil servant in The Insolvency Service and an officer of the court. He (or
she) will be notified by the court of the bankruptcy or winding-up order. He will then be responsible
through his staff for administering the initial stage. This stage includes collecting and protecting any
assets and investigating the causes of the bankruptcy or winding up. An official Receiver acts as a
provisional liquidator after an order of a winding up has been made.Afterwards, he or she can ask
the Secretary of State to appoint an Insolvency Practitioner or call a creditors meeting and ask them
to appoint one. The official receiver also has a statutory duty to look into the behaviour of the
directors of an insolvent company.

22.Duties and powers of promoters

Meaning of a promoter

A promoter may be an individual, a firm or a company who performs all the preliminary duties
necessary to bring company into existence. He conceives the idea, develops it and finds and induces
others to join the company.
The promoters prepare the scheme for the formation of the company, find and bring together the
subscribers to the memorandum, prepare the memorandum and articles and get it executed and
registered, finds the bankers, brokers and legal advisers, finds the first directors and makes
arrangement for the advertisement and circulation of the prospectus and arranges the capital.
The question whether a person is a promoter or not depends upon the role that he has performed
during the formation of the company. Any person who acts on his behalf whether as a solicitor or an
accountant and or paid worker is not considered as a promoter. The most important criteria for
being a promoter is that the individual must have a personal business interest in the company.

Legal position of promoter

A promoter is neither a trustee nor an agent of
the company but he has a fiduciary relationship with the company. Fiduciary relation means a
relation of trust and confidence. Therefore he is liable to disclose all the relevant facts and any
secret profit made by him in relation with the formation of the company.
Duties of a promoter

Following are the important duties of a promoter of a company-

1) He being in a fiduciary position cannot make either directly or indirectly any secret profit at the
expense of the company and even if he makes any secret profit then a company can rescind the
contract made with him.
2) He cannot sell his own property to the company and derive profit out of it, unless he discloses all
the facts relevant to it.
Functions of a Promoter
Discovering business opportunities Conceptualizing the business idea Conducting feasibility studies
Arranging for funds and managerial
Preparation of documents Implementation of Idea Other preliminary activities
23. Doctrine of constructive notice

Section 610 of the Companies Act, 1956 provides the inspection, production and evidence of
documents kept by Registrar. It provides that the memorandum and articles when registered with
Registrar of Companies becomes public document and then they can be inspected by anyone on
payment of a nominal fee. Therefore, any person who contemplates entering into a contract with the
company has the means of ascertaining and is thus presumed to know the powers of the company
has the means of ascertaining and is thus presumed to know the powers of the company and the
extent to which they have been delegated to the directors. In other words, every person dealing with
the company is presumed to have read these documents and understood them in their true
perspective. This is known as doctrine of constructive notice.

Doctrine of indoor management is an exception to the doctrine of constructive notice. Exceptions:-
1)Knowledge of irregularity.
3)No knowledge of articles.
4)Negligence on the part of outsider.
5)Acts outside apparent authority.
24. Doctrine of ultra vires

The doctrine of ultra vires applies to the memorandum of association of a

company. The memorandum of association contains the permitted range of activities in its objects
clause and a company cannot practice any other activity which is not defined under the scope of
objectives mentioned in the memorandum. Any activity done out of the purview of the
memorandum is considered as an ultra vires activity. Such activities are null or void and all ultra
vires transactions can
never be subsequently ratified or validated, not even by the consent of the shareholders.
This rule is meant to protect the interests of the shareholders and creditors of the company.
Effects of Doctrine of Ultra Vires

The effects or the consequences of the Doctrine of Ultra vires are

PERSONAL LIABILITY OF THE DIRECTORS The funds of the company can only be used for
authorised objectives. In case if any director makes an unauthorised payment, he will be compelled
to refund the money to the company. The director will be personally liable for any loss suffered by
the company due to him.
ULTRA VIRES ACQUIRED PROPERTY- If the money has been spent on purchasing ultra vires
property, the company will have the secured right over the property. If the property is legally and
formally transferred, it will become the asset of the corporation, even though the company was not
entitled to acquire such property.
ULTRA VIRES CONTRACT- Any contract by the company officials outside its scope is
completely void and it has no legal effect.
ULTRA VIRES LENDING When the company makes any ultra vires lending or when a person
borrows money from the company under an ultra vires contract, he can be sued by the company to
recover the amount. The promise to get back the money on the borrowed amount is not illegal.
ULTRA VIRES TORT- A company cannot be liable for any tort committed by its officers in
connection with the business outside its scope of objectives. If officers have performed a tort which
is intra-vires, the company will be held liable.
25. Company having domicile but company has not citizenship ?
26 . Difference between fixed and floating charges ?

Fixed and floating charges are used to secure borrowing by a company. Such borrowing is often
done under the terms of a debenture issued by the company. Charges on a company's assets must be
registered at Companies House and may also need to be registered in some other way, e.g. a charge
on land and buildings must also be registered at the Land Registry.
A fixed charge is a charge or mortgage secured on particular property, e.g. land and buildings, a
ship, piece of machinery, shares, intellectual property such as copyrights, patents, trade marks, etc.
A floating charge is a particular type of security, available only to companies. It is an equitable
charge on (usually) all the company's assets both present and future, on terms that the company may
deal with the assets in the ordinary course of business. Very occasionally the charge is over just a
class of the company's assets, such as its stock.
The floating charge is useful for many companies, allowing them to borrow even though they have
no specific assets, such as freehold premises, which they can use as security. A floating charge
allows all the company's assets, such as stock in trade, plant and machinery, vehicles, etc., to be
The special nature of the floating charge is that the company can continue to use the assets and can
buy and sell them in the ordinary course of business. It can thus trade with its stock and sell and
replace plant and machinery, etc. without needing fresh consent from the mortgagee. The charge is
said to float over the assets charged, rather than fixing on any of them specifically. This continues
until the charge 'crystallizes', which occurs when the debenture specifies. This will include any
failure to meet the terms of the loan (non-payment, etc.), or if the company goes into liquidation,
ceases to trade, etc.
When the charge chrysalizes it fixes on the assets then owned by the company, catching any assets
acquired up to that date, but missing any which have already been disposed of. If the charge was
created before 15th. September 2003 the debenture-holder is then entitled to appoint an
administrative receiver, whose job is to collect the assets charged to pay off the loan. This is what is
usually meant when a company goes into receivership. If the charge was created after that date, the
debenture-holder may appoint an administrator.
Most borrowing comes from the High Street banks, whose standard practice is to take an all-monies
debenture, secured by fixed charges on any assets the company may have which will carry a fixed
charge, and a floating charge on all other assets. This is the best security which can be created over
the assets of any particular company. The bank may require other security from the directors and
may want their personal guarantees.

some key differences are as under

Key Differences Between Fixed Charge and Floating Charge

The following are the major differences between fixed charge and floating charge:
1 The charge that can be easily identified with a certain asset is known as Fixed
Charge. The charge which is created on assets that changes periodically is Floating Charge.
2 Fixed Charge is specific in nature. Unlike floating charge which is dynamic.
3 Registration of movable assets is voluntary, in the case of fixed charge. Conversely,
when there is a floating charge, the registration is compulsory irrespective of the asset type.
4 The fixed charge is a legal charge while the floating charge is an impartial one.
5 Fixed Charge is given preference over floating charge.
6 The fixed charge covers those assets that are specific, ascertainable and existing
during the creation of the charge. On the other hand floating charge, covers present or future asset.
7 When the asset is covered under fixed charge, the company cannot deal with the
asset until and unless the charge holder agrees for so. However, in the case of floating charge the
company can deal with the asset until the charge is converted to fixed charge.

27. Difference between member and share holders ?

Key Differences Between Members and Shareholders

The following are the differences between members and shareholders:
1 A member is a person who subscribed the memorandum of the company. A
shareholder is a person who owns the shares of the company.
2 The term member is defined under section 2 (27) of the Indian Companies Act, 1956.
Conversely, the term shareholder is not defined in the Indian Companies Act, 1956.
3 The bearer of a share warrant is not a member, but the bearer of a share warrant can
be a shareholder.
4 All shareholders whose name are entered in the register of members are the
members. On the other hand, all members may not be the shareholders.
5 In the case of a public company, there must be a minimum of 7 members. There is no
such cap on the maximum number of members. Similarly, a private company can have a minimum
of 2 and maximum of 50 members. As opposed to shareholders, there is no minimum or maximum
limit, in the case of a public company.

28. Company is an artificial person comment on it ?

A company is an artificial person created by law. It has not any hand, leg, heart or physical body. Its
existence comes when a company is formed and registered under company law. After coming in
existence, it can do all business work like a human businessman. It can open his bank account.
Company can buy or sell any asset on his own name. Company gets loan on his own name. It can
sell own shares in the market.

There will not any effect on the company whether any shareholder will come or go. Company will
live even if any shareholder sells his all shares. Other person who will buy the shares, will become
the new owner of company. Company will not have any personal relation with shareholder. Every
shareholder's liability upto his bought shares.

It has also its own a common seal. This seal will use in all the agreements which will be done on the
name of company. Company can not sign, so it is very necessary for making common seal which
company can use as showing his identity on every agreement. All the documents will only legal if
authorized person's sign will be on the document and company's seal will be on same document.

29. Limited by share , Type of limited guarantee ?

"Limited by shares" means that the liability of the shareholders to creditors of the company is
limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid
in return for the issue of the shares by the company. A shareholder's personal assets are thus
protected in the event of the company's insolvency, but any money invested in the company may be
A limited company may be "private" or "public". A private limited company's disclosure
requirements are lighter, but its shares may not be offered to the general public and therefore cannot
be traded on a public stock exchange. This is the major difference between a private limited
company and a public limited company. Most companies, particularly small companies, are private

limited by guarantee :-
Companies limited by guarantee are widely used for charities, community projects, clubs, societies
and other similar bodies. Most guarantee companies are not-for-profit companies - that is, they do
not distribute their profits to their members but either retain them within the company or use them
for some other purpose. Most such companies need their articles to be drafted for that particular
organisation, and this is the main specialised work to be undertaken.

in other words
Limited by guarantee companies are most often formed by non-profit organisations such as sports
clubs, workers' co-operatives and membership organisations, whose owners wish to have the benefit
of limited financial liability.
A company limited by guarantee does not have any shares or shareholders (like the more common
limited by shares structure) but is owned by guarantors who agree to pay a set amount of money
towards company debts.
Furthermore, there will generally be no profits distributed to the guarantors as they will instead be
re-invested to help promote the non-profit objectives of the company. If any profits are distributed
to the owners, then the company will forfeit its right to apply for a charitable status.

30. minimum subscription

Minimum subscription is the term which is used to represent the amount of the issue which has to
be subscribed or else the shares can't be issued if it is not being subscribed. Company which is
offering the shares to the public then they set a specific amount for the subscription which can be
taken by the public in order to issue the shares.

The minimum subscription which is required for a company to utilize funds as follows:-
1. Infrastructure company won't have to have the requirement of 25% of its securities as public

2. If the infrastructure company offers the requirement for the shareholders in that case Rs. 1 lakh
can be waive off.

3. Infrastructure companies which are having public issues for them minimum subscription of 90%
is not necessary and it should be given by the alternate source through that fund is coming to the

4. Infrastructure company can keep the issue open for 21 days only which would give the sufficient
amount of time to get the funds for their issues.
Section 69 of the Companies Act, 1956 specifies that no allotment shall be made of any share
capital of a company, offered to the public for subscription, unless the amount stated in the
prospectus as the minimum amount has been subscribed.

31. Difference between winding up and dissolution of a company ?

4 Most Important differences between Dissolution and Winding Up are listed below:
1. The dissolution of a company is recorded and registered by the Registrar of Companies.
2. The process of dissolution is purely administrative function.
3. The Liquidator does have any important role in the dissolution.
4. The dissolution must take place after winding up.
Winding Up:
1. The winding up of a company is heard and judged by the Tribunal.
2. The process of winding up is purely judicial function.
3. The Liquidator has important role in the winding up.
4. After winding up, dissolution takes place.